They must bear in mind that they will have to do more. Systemically Important Financial Institutions (SIFIs) should have higher loss absorbency capacity.

George Lekatis
http://www.basel-iii-association.com

Just reviewing Tier 2 rules and I note you appear to refer to extremely high levels of Tier 2.
Under Basel II, rule of thumb was 4% tier 1 PLUS 4% Tier 2 & Tier 3 to reach 8%.
Tier 3 was (like level 3 assets) pretty meaningless so Cap Instruments that qualified will no longer eligible (unlike Level 3 assets). Tier 2 will probably comprise loss absorbing Capital Instruments with added conditionality as suggested by BIS last month that allows regulators to define an event which triggers conversion of debt to equity.. the so called ‘Bail in’.
Since Minimum Total Capital is 8% (ex. buffers) with Tier 1 min of 6% of which Common Equity must 4.5%, Tier 2 will therefore be around 2%+, there or thereabouts, not the 8%+ levels you refer to.
Kind Regards

David McKibbin

A clear impact on margins is not seen yet. What I have seen is a 25bps extra margin for interest rates fixed in the range 6 to 10 years.

In Basel III you will find that most of the capital requirements are “in relation to risk-weighted assets (RWAs)” and, since what is most wrong with Basel II are precisely the risk-weights, which for instance counts any investment or loan to a private triple-A rated client at only 20%, and which was precisely what drove the banks to stampede after the triple-A rated securities collateralized with lousily awarded mortgages to the subprime sector, and the risk weights have not been modified at all, let me assure you that the Basel Committee still has no idea about what they are doing. Frightening!

Basel III does mention that “These capital requirements are supplemented by a non-risk-based leverage ratio that will serve as a backstop to the risk-based measures described” but since that supplement seemingly will be small and what really counts are the marginal capital requirements for different assets Basel III does not provide a solution.

Fact is that if a bank lends to a small business then it needs 8 percent in capital but if it instead lends that money to the government of a sovereign rated AAA to AA then the bank needs no capital for the risk-weighted assets since the weight is 0%… this is sheer lunacy!

The members of the Basel Committee are all still so fixated with looking at the gorilla called “perceived risk” so as to completely lose track of the ball.

Per Kurowski
A former Executive Director at the World Bank

http://subprimeregulations.blogspot.com/