The Great Debate UK

from Felix Salmon:

Basel III: The compromise

Maybe 9% was too good to be true after all. According to David Walker, of Australia's Banking Day, a compromise with "nations including Germany, France, Italy and Japan" has knocked 0.5% off the proposed Tier 1 capital requirements, and another 0.5% off the proposed conservation buffer. As a result, banks wanting to pay dividends are now going to have to have a minimum of 8% Tier 1 capital, rather than 9%.

If* the new ratios are strictly enforced once they become fully phased in, this is still a big improvement over what we had before, and a win for the community of global bank regulators. Still, we're not there yet: final agreement won't come until the G20 meets in Seoul in November. Fingers crossed nothing else will get diluted between now and then.

*This of course is a big if, and Kindred Winecoff, for one, thinks that it's hopeless to even dream that it might become reality:

Politicians won't give up their domestic authority or ability to address changing local circumstances, so agreements made in Basel are subject to interpretation, implementation, and enforcement by domestic regulators. The U.S. still hasn't come into full compliance with Basel II, for example, and there is essentially no recourse for other nations or the BIS to force it to do so.

from Felix Salmon:

Will Basel III really deliver?

I very much hope that Die Zeit is right about the Basel III capital requirements: the numbers being mooted there are definitely at the top end of what anybody expected.

They start with a bare minimum Tier 1 capital requirement of 6%; that's a substantial increase of 50% over the 4% minimum that holds right now. And then they get tougher. There's also a 3% conservation buffer: essentially, if your Tier 1 capital is less than 9%, you're constrained in what you can do; certainly you can't pay out dividends to shareholders. On top of that, the countercyclical capital buffer is being set at another 3%, which means that in good times, healthy banks wanting to pay dividends will need Tier 1 capital of 12%.

from Felix Salmon:

The good and the bad of Basel III

It's looking as though the FT was, thankfully, a little over-hasty when it led today with a big story saying that the banks have won the Basel battle over liquidity requirements. A BIS spokesman (the BIS is the organization hosting the Basel III negotiations) says that weakening liquidity requirements hasn't even been discussed, let alone agreed to. Yes, it's likely that the banks will win some concessions at some point, but there's a long way to go before then.

Joel Clark is hearing similar messages:

Senior committee members have told Risk they were shocked to see reports suggesting the proposal for a net stable funding ratio (NSFR) would be shelved, as they don't intend to make any firm plans until the next Basel Committee meeting on July 15 at the earliest...

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