Chillin' out till it needs to be funded
The Super regulation is necessary
In the US and in Europe where much of the Competition guys’ and government contract clauses have restricted banks in the really important diversification of their businesses, there have been a lot of changes to Banking law. Apart from the competition clause that has hampered their growth, the other clauses are mostly about not running a high cost business, not over leveraging and not running an opaque business for stakeholders and consumers.
Thus to an extent criticism of the banks that they have to pay for their excesses of the prior “after life” till 2007 is mostly correct in more ways than one. Surplus Capital at banks and insurance was calculated after passing balance sheet entries for month end rebalancing, almost 1 in 6 of Capital Dollars at each bank were monies inter linking banks and they all could hedge only by extra subordinated leverage.
Super charge update: The Capital surcharge by Dodd Frank for the identified 19 SIFI banks may still be tiered higher but for american banks in general, it will come to a lower mark of around 2.5% making US regulation suddenly overboard, asking banks to maintain between 11-12% of Tier I plus Tier II capital. the same will in fact be worth 14-15% in the current law as it will be charged to Risk Weighted Basel Capital as advised for the 2013 deadline including inter bank and other Risk weighting changes.
For China’s banks for example the new risk weighting increases Basel ordained Capital requirement by 1.82% from the current levels but someone like ABN AMRO is affected by less than 1% extra capital and DB is affected by almost 3%. Thus the American big banks, without extra provisions would need to calibrate Capital and get more in to the tune of 4-5% including the surcharge
But are the banks being bad?
However, in the media circus, the political portrayal of the banks vs state and the Frank Dodd proposals do not seem to have the right synchronisation. Each of the pieces of Frank Dodd regulation seemingly interspersed by pecuniary action on Goldman Sachs and now HAMP action on BAC, JP Morgan and Citi as well include long periods of ill-informed and partisan posturing by the Federal Republican committees.
That is more the gander and the goose looking for the wrong sauce all the time than serious banking business and the final regulation do not portray the same prolific torture for a sector that more or less underwrites and accounts for most of your growth through Credit and through new Capital expansions routed thru the sector
Each Dodd Frank proposalis a professionally determined piece of legislation and each SEC ? Republica debate thereon or even that of other Government agents like Barney himself is a considerably farcical pronouncement and in the case of the Congressional committee, it has even lowered itself to mudd slinging and seemingly perjury.
Is it even super-regulation?
Apart from some key retail banking measures that have truly hampered their steed, the banks have really gained from each of their regulations, most banks having internally assessed these internally as required. The Leverage norms, the capital injections and the regulations for the rating agencies a case in point. In fact US regulation has been well timed though taking too long by some standards and everyone must move on to doing business. A key delay has been in the latest surcharge pronouncements on which already the proposals are incorporating a little moderation.
There are many practices that will continue, even after the Frank Dodd act
Coming from India, I even find the Corporate practice of Cash management with 90 day treasuries to fund Capital Gaps at most
Corporates funded by unlimited rollovers a little nasty and that has not even been touched yet. Even the Fed funds the global inter bank market to 30% of its erstwhile $800 bln balance sheet, now much less as the balance sheet is worth $2.5 trillion. But behind all these so called excesses is the fundamental fact that the banks contribute almost a third of the national GDP in the US and a fifth even in highly priced Europe and its family of poor cousins who have hidden as developed nations for a long time, now unable to stem the rot and needing to reinvent themselves.
but, that’s just part and parcel of doing business
and also laws that encourage lower diversification by selling international businesses have just encouraged banks to look for more complicated legal structures to defy global safeties engendered by business and geographic subsidiarisation
Laws that require banks to foreclose or limit costs charged from customers are not overarching by any means but if the banks are perceived as being critical to the Economy after this analysis and public spat, it may just reduce the banks to try getting everything to pre 2007 levels.
Lasting laws limiting compensation and bonuses are unlikely to be tabled anywhere outside the pond’s lesser populated neighbours who have probably run themselves out with over regulation on deals and salaries.
I cannot imagine sub units of the BoE taking over being any comfort fo UK banks bleeding out by the second, thus preempting any consideration for such extravagance for high ground in the US or any of the Emerging Markets in Asia/South Asia
How slow are banks?
Quoting from Moore’s notes:
Financial stocks have trailed the broader market for 9 of the last 11 months. Bank of America, the biggest U.S. lender by assets, saw its stock hit a two-year low on June 6.
15 factors incl. new limitations on proprietary trading and debit-card swipe fees; state and federal investigations into mortgage practices; and stricter capital and liquidity requirements.
New rules set by the Basel Committee on Banking Supervision, which will begin to take effect in 2013, may trim the return on equity of U.S. banks by 3 percentage points
The number of U.S. financial-industry jobs dropped for the fourth straight year to an average of 7.63 million in 2010, according to the Bureau of Labor Statistics. That’s 8.4 percent below the 2006 peak,
Net revenue at the six largest U.S. lenders—Bank of America (BAC), JPMorgan Chase (JPM), Citigroup (C), Wells Fargo (WFC), Goldman Sachs (GS), and Morgan Stanley (MS)—will probably fall 3.7 percent in the second quarter, the fourth year-over-year decline in five quarters, according to 100 analyst estimates compiled by Bloomberg