Basel

Claire Jones

The Basel Committee on Banking Supervision on Tuesday issued the latest round of its reports on how implementation of the Basel standards was going among each the 27 countries that make up the committee’s members.

There were some signs of improvement since October, when the last set of scorecards was released.

Seventeen countries have now published draft regulation on Basel III – up from 11 out of 27 last autumn – though nine of them are covered by the European Union’s draft bill. But Saudi Arabia remains the only one of the 27 countries to have published a final rule. Read more

Claire Jones

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Bernanke goes back to school

Ben Bernanke, Fed chairman, next week delivers the first two of four lectures to undergraduates at the George Washington University School of Business. Read more

The new Basel III rules requiring banks to hold more capital are too weak and should be doubled to provide optimal protection against future economic shocks, researchers at the Bank of England have concluded. The discussion paper issued on Thursday compares the economic costs of forcing banks to hold more equity against potential losses with the benefits of having safer banks.

It concludes that the greatest benefit would occur if global regulators required banks to hold equity capital equal to between 16 and 20 per cent of their assets, adjusted for risk. The new Basel III minimum, approved last year, is of 7 per cent and phases in gradually over eight years. Read more

Chris Giles

Yes. As Angela Knight, chief executive of the British Bankers’ Association says:

“A bank is like any other business – if its fixed operating costs go up then so does the price of its product. All the changes are good from a stability perspective but add billions to the fixed operating cost of a bank. The consequence is that inevitably the cost of credit – the price the borrower pays for money – will rise. The cheap money era is over.”

But I am sure Ms Knight, as a skilled lobbyist, knows that being strictly correct can happily coexist with being seriously misleading. The impression she gives is that tighter capital and liquidity standards will hit households hard through dearer credit and it is all the fault of pesky regulators. There are two big problems with this: first, the costs of tighter capital standards are only important relative to the benefits; second, the scale of the costs is more important than their existence.

Costs and benefits Read more

Basel attendees have effectively raised the tier one capital ratio from 2 to 7 per cent. The package, popularly known as Basel III, sets a new ratio of 4.5 per cent, but also sets a buffer of 2.5 per cent, setting an effective buffer of 7 per cent. (Banks with capital ratios falling between 4.5 and 7 per cent will face restrictions on paying dividends and discretionary bonuses.) Changes will not be entirely phased in till 2019.

Had the stress tests required 7 per cent, rather than 6 per cent, 17 more European banks would have failed under the adverse scenario with sovereign shock (see column T1_AdvS, below). These are almost exclusively PIIGS banks – except for one Slovenian bank, and two German banks (Norddeutsche and Deutsche Postbank). Read more