Howard Davies
Almost everyone nowadays agrees that banks need more capital. But a wide gap has opened up between financial authorities and the banks on the costs and benefits of the much higher capital requirements that regulators are now demanding.
PARIS – Almost everyone nowadays agrees that banks need more capital. Christine Lagarde chose to make it her first campaign as Managing Director of the International Monetary Fund. And conventional analyses of the financial crisis focus on the weak capital base of many banks, which left them with insufficient reserves to absorb the losses they incurred when asset prices fell sharply in 2007-2008.
Taxpayers, notably in the United States and the United Kingdom, were obliged to step in to fill that hole. The same disaster movie is now playing in the eurozone. We can only hope that the bankers are eventually rescued from the burning eurotower by Super-Sarkozy and Wonder-Frau Merkel – and that the Basel Committee of Banking Supervisors ensures that there will be no sequel.
The Basel Committee has proposed strengthening considerably both the quantity and the quality of capital in the global banking system. This would mean much larger core equity capital for all banks and a range of additional reserves – a capital conservation buffer, a countercyclical buffer, and a surcharge for systemically vital institutions – to be added by local regulators as they see fit. Unfortunately, the final implementation date for these new obligations has been deferred until 2019 – by which point a few banks might still be left standing.
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PARIS – Almost everyone nowadays agrees that banks need more capital. Christine Lagarde chose to make it her first campaign as Managing Director of the International Monetary Fund. And conventional analyses of the financial crisis focus on the weak capital base of many banks, which left them with insufficient reserves to absorb the losses they incurred when asset prices fell sharply in 2007-2008.
Taxpayers, notably in the United States and the United Kingdom, were obliged to step in to fill that hole. The same disaster movie is now playing in the eurozone. We can only hope that the bankers are eventually rescued from the burning eurotower by Super-Sarkozy and Wonder-Frau Merkel – and that the Basel Committee of Banking Supervisors ensures that there will be no sequel.
The Basel Committee has proposed strengthening considerably both the quantity and the quality of capital in the global banking system. This would mean much larger core equity capital for all banks and a range of additional reserves – a capital conservation buffer, a countercyclical buffer, and a surcharge for systemically vital institutions – to be added by local regulators as they see fit. Unfortunately, the final implementation date for these new obligations has been deferred until 2019 – by which point a few banks might still be left standing.
To continue reading, please log in or enter your email address.
To access our archive, please log in or register now and read two articles from our archive every month for free. For unlimited access to our archive, as well as to the unrivaled analysis of PS On Point, subscribe now.