Comments on: Should we worry about the Basel delay? A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: y2kurtus Mon, 13 Sep 2010 18:43:16 +0000 The basel framework is simply a HUGE step forward when compared with the status quo. The added flexibility will allow national regulartors to implement countercyclical policies.

The best part is that because of the 2.5% cushion CEO’s won’t be able to be even near the mnimums because to do so would make it impossible to raise new equity or preffered equity.

The one “problem” is that goverments are sort of expecting banks to use the phase in period to slowly build up capital through earnings retention. That will absolutely NOT HAPPEN. Banks were shrinking their balance sheets before these requirements were released… they will do so with increased urgency now.

You will see a race to get capital ratios up above maximum ranges… some banks are already there.

The easiest way to increase your capital ratio is run a report on your loan portfolio and then simply not renew your least profitable customers.

I’m sorry Wal-mart… we won’t be re-upping your $100,000,000 line of credit anymore because we aren’t interested in lending a penny at LIBOR -50bps. Ya, I know you’re a big account… it’s just that your business is marginally profitable and by dropping the 10% of customers who are the least profitable we increase our capital ratios by a full percentage point like the goverment wants.

That is absolutely playing out right now. Borrowers who were use to rate shopping are getting the cold sholder. Depositors who are threaten to pull their deposits because of paultry rates are being told “I’m very sorry to lose your business Mrs. Smith”… (but that is EXACTLY what I want because I don’t need your deposits because I’m not trying to grow my loan book.)

Over all I’m thrilled with the Basel framework.

By: bigturkey Mon, 13 Sep 2010 18:32:33 +0000 I’d recommend against a fix to bullion. Let’s be clear about this, gold has some actual value as a metal but only a tiny fraction of the current “value” of gold. The value of gold is 100% created by the greater fools phenomenon. Some day some one is going to say “you’ve got to be kidding, that stuff’s worthless” and the next day everyone stuck with the stuff will have to pay to have it carted away. Best to sweep it quickly away before anything important is broken when this happens.

By: Amaresh_Gangal Mon, 13 Sep 2010 17:46:11 +0000 Tougher rules is good thing but I am sure there will have smarter ways to bypass these rules.

How about fixing the problem with currency (Pegging it to bullion) so that currency becomes strong enough where bank can not do bad loan. Today there is paper currency so bank can do it. And they know if they fail, they will get bailed out..With hard currency banks can’t play much.

With this news though I revisit, do not necessarily change my predictions on …URL below. predictions.html

Amaresh Gangal

By: IanFraser Mon, 13 Sep 2010 15:53:51 +0000 I think there’s a key problem here. Even though people including you, Felix, and a number of other specialist financial scribes have done a superb job in reporting on and analysing the Basel III rules, such reforms are ignored by the mainstream media.

This enables the technocrats and governments who put these things together to do so in a vacuum, in ways that may be more likely to suit the bankers than the wider public interest. Robert Peston, ex-Financial Times journalist and business editor of the BBC, wrote a blog piece on this today robertpeston/2010/09/why_have_we_left_ba nk_reform_t.html. I agree with him.

In an information vacuum, it is easier for bankers and their lobbyists to use scaremongering tactics in the hope of getting reforms killed off or delayed, as I reported in qfinance in June:  /2010/06/23/bankers-square-up-to-regula tors-over-economic-fallout-of-basel-iii.

By: Polycapitalist Mon, 13 Sep 2010 14:25:28 +0000 Felix, Thanks for covering Basel III in depth. Personally, I feel we need more analysis on which banks currently comply with the new rules and which ones don’t. I’m skeptical that the eight year Basel III phase-in period is benign.