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The Basel III standards for Capital raising | Advantage zyaada

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Pardon me but the regulators seem to be doing alright. No the old western did not fool you, The villians and the heroes or paid mercenaries, they all stroll into the sheriff’s town riding the ponies. Government then takes the guns out not knowing the good guys from the bad, which gives the good guys one gun, then another…so the story goes.( and then we will pony up for the dip in growth staying on at the corner post, that’s a wild ride) But it seems unlikely that BIS has increased the burden on banks to raise capital from investors and most banks are in line with regulations across current capital silos defined by the US and BIS as well as national safeguards being implemented elsewhere.

We are not living in the Wild Wild West of course, but if you read the media line up on Basel from the Financial Times to the WSJ and the new look dealbook that continues delivering, we have just decommissioned the entire regulatory structure for the whims and fancies of a few bankers. Let’s get back to work and unlock this new Basel 3 for you:

Banks have been seriously hit firstly as the Inter Bank lending has been completely nullified after risk controls requires Banks to add 2-3 times the Capital currently on the books from Risk Weightings for the Bank loans. As they do not count as 100% Tier I Capital equivalents anymore that will definitely awaken more bankers to money market lending practices, the inter bank market being a hitherto closed category for the larger ( if only by a few pips) market.

Goldman and Citi have already paid fines to the system for hiding information on sub-prime books from investors and Lehman has already paid the price for displaying deviant 105 behaviour in the club of banks that do condone the very same practices day in and day out. Goldman has paid out $550 million and Citi $75 million on such SEC settlements. Basel 3 may be touted as a half baked solution by bankers on the new continent across the pond or in the London press itself as it allows certificates for “Mortgage Servicing Rights” and “Deferred Tax Assets” that will not really enhance the credit ratings of inter bank capital . However BIS has recommended that this capital along with capital be capped at 15% of the Tier I Common of the bank. Thus the cap is in fact much smaller at around 8% of the Tier I Capital of the Bank. The definition of Financial Institutions does not include insurance and hedge fund lenders to the bank. The regulations overall do cover all of the inter bank issues with anointing risk weighted capital.

The other point of disagreement for lunch parties at media hubs in London would center around the fact that the dear departed from the banks would still be the ones with eff3ctive expertise in the subject and with BIS not treating this like Fraud 101, their ubiquitous license to get the bankers to kneel before the fourth estate and thence the politicians is a viable target as long as they get free lunch.

The buffer range established is a banker regulators’ trick to just subsume the miniscule interbank limit provided and with larger exposures counting as Tier II Capital, there is a distinct dull flavour to the international market

However, the mandatory limits on leverage in basel II have also been deferred till 2018. As for now a cap of 33 times Tier I Common is proposed which would be a healthy 14-15 times for the overall capital of an established banking corporation. It does seem like the regulators have done their job right. However, with Dodd Barney creating a new regulatory anthill across the pond, things will remain fluid on the interactions. Tier I common ratio has already been found to be 6% at European Banks in the July tests, while US Baks have completed their capital restructuring earlier, albeit some of them still need to repay the treasury at the non banks like GE and GMAC

2 comments on “The Basel III standards for Capital raising | Advantage zyaada

  1. Pingback: Tweets that mention Basel III proposes new regulatory standards | The Banking and Strategy Initiative -- Topsy.com

  2. Shane Fuhri
    August 7, 2011

    I love your blog.. very nice colors & theme. Did you make this website yourself or did you hire someone to do it for you? Plz answer back as I’m looking to construct my own blog and would like to find out where u got this from. cheers

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