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Global Bank, Global arguments on Capital

Seal of the United States Federal Reserve Syst...

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Update: The new Dodd Frank surcharge is likely on RWA assets (Risk Weighted) and amounts to a tiered charge of between 1.4% and 7% and according to Pearsons publications, likely 3% in addition to Tier I requirements in Basel 3 earlier published here. The risk weighting is done by manually categorising the institutions on their level of risk by apparently the Fed

(WSJ)The Fed is considering a stricter capital regime than many on Wall Street expected. A leading idea among Fed staff would require the riskiest institutions—those whose collapse could cause the most collateral damage—to boost capital levels 100% above the Basel international standards, while less-risky institutions would need a 20% bump.

What is so irritating and rhetorical in the question of bank law?

The Systematically Important Financial Institutions, not to be confused with Youth Terrorist outfits in Middle India called SIMI have got a definition war waging longer as the reforms tabled in the first draft get penciled into legitimate legislatural theatrical production and the TBTF has become a movie and succeeded in sensationalising an otherwise true account.

The SIFIs to include Mutual Funds and other players in Liquid Fed pools will include extra sensitive laws and benchmarks for which they will be answerable with greater transparency in their financial statements rather than the lower transparency that is accorded to them as Global Institutions today

There was a BCBS on this side of the pond..

As if the waters were not muddy enough, the Dodd Frank teams have again confused the reforms completed by Basel on the other side of the pond . While Basel defines something acceptable to those on the continent including survivors like ING, HSBC and DB and pond fish and tackle teams from Barclays and ABN AMRO, it imposes an additional 7% capital charge on everyone for Tier I that is over and above the test for Capital for the bank which is the more well known Capital ratio. However, Basel had also cleared the available Tier I by removing all Inter Bank liabilities from Capital and improvising Risk Weighting to more manageable levels

The Basel Committees did not make any overt concessions to larger institutions but still made a staggered Calendar, much giving the larger institutions breathing time so they could plan to and execute getting their house in order without the regulator looking over their shoulder.

The Dodd Frank surcharge is not really different..

The designated SIFIs may not be comfortable as the Top 50 FIs in the country have highly customised methods of risk management as purveyors of IRB forms in the Tiers III of current Basel II norms. Also as Domestic US institutions and global non banking institutions, they had not familiarised themselves to complex risk management on the other hand and thus were looking to more molly-coddling in one to ones with the US regulators than the CFPRA the penalties and now the surcharge on risk.

However, the banks internal risk departments will also now proceed with reform..

The institutions in the US thus may now have a harder or easier deal than in Europe and Asia ( various versions of the Global Basel norms in different degrees of alignment) based on the amount of inter bank funds and money market instruments they use to keep themselves sunny. Across the pond, DB may not be paying the 1-8% Dodd Frank surcharge for SIFIs but will be ponying up at least $90 bln addl capital as they let go of their larger Inter Bank market holdings. In the USA the surcharge makes an attempt at usurping Basel’s speed to market with their own simplifications as legislation becomes cumbersome , compromised and cathartic to preclude any popularity contest s with consumers or bankers that senates and Congresses may have visioned.

And the truth of it is, as a Global bank would now  be ready to come out with my own internal assessments and do the real reform for which external regulators / super regulators can only watch in whatever garb and form and the banks establish no clutter no see through mechanisms that preclude punitive threats and unnecessary power broking and molly coddling

International Banks make a sizable part of the Fed Reserve’s reserve

30% of the liquidity transactions of the Fed REserve hit International, European HQ banks as everyone needs easy cheap money t compete with effective cost of capital in its Treasury. Thus borrowers like SocGen would pay their Tier I surcharge only in Basel 3 net of all the inter bank deposits which would not thus count this Federal Support.

Other Dodd Frank Reforms are effective  already but they are not  global

Bigger corporate bank concerns actually tackled by Dodd Frank in detail thus include the banning of OTC derivatives and the spawning of a Central counter-party or two for the same whence Derivative data will also be easily available. But this still does not negate the damage done by conflicting banking regulation and sub clauses like the use of inter-bank liquidity with or without surcharge in the Us where the Basel form and matter and European regulations try superimposing bank norms on non banking investment companies, mutual funds, wealth funds and any remaining hedge funds not explicitly banned outside the US as also Prop trading for Euro striving banks and Latin/Asian megaliths with global ambitions




Representative Barney Frank, co-architect of t...

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13 comments on “Global Bank, Global arguments on Capital

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