[OPE] Financial regulation and bank capital ratios

> From: adsl675281@telfort.nl
> Subject: Financial regulation and bank capital ratios
> Date: Tue, 27 Apr 2010 20:02:55 +0200
>
> Thought I would draw your attention to this:
>
> Morgan Stanley provides quite an interesting commentary on recent
> initiatives to regulate the banking sector more
> http://www.bis.org/publ/bcbs165/jpmorganchase.pdf
>
> The FT ("US prepares to push for global capital rules" by Tom Braithwaite,
> 24 April 20101), which refers to this document, notes the international
> discord and bargaining about desirable capital and leverage ratios:
>
> "The most important fault line runs between a bloc of countries that
> includes the US, the UK and Switzerland and one that includes Germany,
> France and Japan. The first group is enthusiastically behind a substantial
> increase in capital ratios coupled with a more conservative assessment of
> what counts as capital, tough liquidity rules and a new simple leverage
> ratio. The second group is more attached to the pre-eminence of the current
> risk-based approach and wants the leverage ratio to have a much less
> important role in governing banks' balance sheets. Officials in the US and
> Europe are now starting to discuss the quantity of an increase in ratios
> among themselves. Some want a dramatic increase in the minimum level of
> capital over risk-weighted assets - perhaps to as much as 25 per cent from 8
> per cent today - to be on the table while others want a more modest revision
> of capital rules."
> http://www.ft.com/cms/s/0/28959166-5082-11df-bc86-00144feab49a.html
>
> Morgan Stanley predictably emphasizes that new state constraints on credit
> facilities, and a more conservative lending stance, will raise the cost of
> capital and lower its availability, which must lead to price increases.
>
> The manager of BIS, speaking of "macroprudential policy" (including
> countercyclical interventions), states (23 April) that:
>
> "... the goal of monetary policy should not narrowly aim at controlling
> inflation over the short run. Rather, it must also take account of credit
> growth and asset information, with the aim of promoting financial and
> macroeconomic stability over the medium term. In the long run, the two goals
> are indeed likely to be consistent. (...) The IMF has been asked by the G20
> leaders to prepare a report with options so that the financial sector could
> make a fair and substantial contribution to the burden of government
> interventions. From the financial stability point of view, the key is to
> recognise that taxes/levies and capital surcharges are complements, not
> substitutes. Capital requirements directly address the level of systemic
> risk by reducing the probability of failure of financial institutions. They
> affect risk-taking directly and unambiguously. If correctly calibrated, they
> also internalise the contribution of an institution (or a group of
> institutions) to systemic risk. Levies and taxes, on the other hand, are
> classic means of dealing with an externality and promote burden-sharing."
> http://www.bis.org/speeches/sp100426.pdf
>
> Regards,
>
> Jurriaan

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Received on Tue Apr 27 17:08:21 2010