The Basel Bankers Ensure Easy Money From the Fed as Far as the Eye Can See
How convenient! Basel is getting tough on capital requirements and the Fed is totally down for it because, well, that means they can feel useful for another 5 years or so while they hand out cheap easy money in the bank breadline.
Getting tough on banks? Naaaaah, more like bringing in the big money laundering guns.
The Basel Committee on Banking Supervision will require lenders to have common equity equal to at least 7 percent of assets, weighted according to their risk, including a 2.5 percent buffer to withstand future stress. Banks that fail to meet the buffer would be unable to pay dividends, though not forced to raise cash.
The definitions of what counts as capital and how risk is assessed have also been tightened. Some banks, such as Bank of America Corp. and Citigroup Inc., will be restricted in how much cash they can return to shareholders and pay their employees in years to come. Others, like Deutsche Bank AG, have already announced plans to raise additional capital.
“These are big changes in capital requirements,” said James Wiener, the New York-based head of finance and risk practice at Oliver Wyman, a management-consulting firm. “There’s a long period of adjustment, which takes off some pressure. But still, who wants to own a bank that can’t pay dividends for three years?”
In May of 2006, then brand spanking new Fed Chairman Ben Bernanke gave a speech on Basel II, the last round of BIS capital requirements allegedly put in place to assure safety and soundness in the financial system. Unless you have been in a coma or otherwise but equally clueless (such as having your head shoved up your ass), you already know that things didn't work out quite like the central bankers had hoped.
To maintain U.S. and global financial stability, we want to ensure that banks, particularly our largest and most complex institutions, will remain able to serve their customers and meet their obligations as lenders and counterparties during periods of economic or financial stress. That requires, of course, that banks have both adequate capital and strong risk management. Because confidence promotes stability, it is also important that supervisors and market participants are able to assess for themselves the financial soundness and risk-management capabilities of these institutions.
Basel II is a comprehensive framework for improving bank safety and soundness by more closely linking regulatory capital requirements with bank risk, by improving the ability of supervisors and financial markets to assess capital adequacy, and by giving banking organizations stronger incentives to improve risk measurement and management. The framework encompasses three elements: risk-focused regulatory capital requirements, supervisory review, and market discipline. These are the so-called three pillars of Basel II.
I and II didn't quite do it but hey, maybe IIIrd time's a charm, right?