Monday, September 13, 2010

An Alphaville Twofer: "Basel III has landed — full details" and "Basel III — the analysts react"

The banks won again.
I'm edging closer to a full-blown Bilderberger, Trilateral Commission, Council on Foreign Relations, Rothschild/Queen of England conspiracy weltanschauung.
Fortunately I have been anticipating this.*
Here's a handy site if you wish to learn how to make a metallic chapeau.

The first piece is posted by the anonymous electron-stained wretches known only as:

It’s here, finally. With a minimum bank capital ratio of 7 per cent.
The world’s central bankers and regulators confirmed new capital and liquidity standards for the banking system on Sunday.
Here are the all-important details on both the reforms’ substance and their implementation dates, via the Basel Committee release.
First — a Core Tier 1 capital ratio of 4.5 per cent, broadening to overall Tier 1 capital of 6 per cent:
Under the agreements reached today, the minimum requirement for common equity, the highest form of loss absorbing capital, will be raised from the current 2% level, before the application of regulatory adjustments, to 4.5% after the application of stricter adjustments. This will be phased in by 1 January 2015. The Tier 1 capital requirement, which includes common equity and other qualifying financial instruments based on stricter criteria, will increase from 4% to 6% over the same period. (Annex 1 summarises the new capital requirements.)
This will begin implementation from 2013 to 2018...MUCH MORE
The second is a handy roundup by Izabella Kaminska:
The FT Alphaville inbox is getting chock-full of analysts reacting to the confirmation of Basel III’s new rules revising bank capital ratios.
So here — in due fashion — is the best of the best for our readers.
In no particular order, we start with the thoughts of Evolution Securities’ Gary Jenkins (our emphasis throughout):
As we approach the two year anniversary of the demise of Lehman’s it is appropriate that the focus of the market today will be on the financial sector. Yesterday the latest capital requirements for the banking sector were published by the Basel committee on banking supervision. The changes were pretty much in line with expectations both from the actual numbers and the time allowed to implement them. The key changes are that the minimum common equity requirement will increase from 2% to 4.5% and in addition there will be a 2.5% conservation buffer bringing the total to 7%. Banks will be allowed to use the buffer during periods of stress but the more it is used the greater the constraints will be on earnings distributions. The new regulations will be phased in over quite a long period of time and indeed will not be fully implemented until the start of 2019.
Note that systemically important banks will be expected to have loss absorbing capacity “beyond the standards announced today” and thus further work is underway which could involve “combinations of capital surcharges, contingent capital and bail-in debt.” All other things being equal an increase in capital for the banking sector is of course good news for bondholders and the combination of the new regulatory regime and the stress tests does seem to have restored some confidence in the sector as evidenced by the recent amounts of bond issuance. Sticking with the bank theme Deutsche Bank has officially announced that it will be raising close to €10bn in a capital increase which is primarily for the Postbank deal but also to “support the existing capital base.”
Meanwhile Peter Westaway, chief Europe economist at Nomura, worries about the lack of focus on the too-big-to fail issue:
There is nothing in today’s agreement that explicitly addresses the too-big-to fail issue, something that will be addressed at future discussions at international and national levels.
Overall, these new regulations will no doubt strengthen the ability of the global banking system to withstand severe shocks of the sort that have occurred during the financial crisis. And most importantly, the proposed rules on leverage ratios should make such crises less likely to occur in the future. There was always the danger that these new regulations would undermine the ability of the banking system to provide financing to a recovering global economy. The fact that global policymakers have recognised these dangers by phasing in these measures slowly represents an important dose of common sense. But no doubt, these measures will hurt banks as they are intended to.
In their analysis, Citi’s European banks research team notes that the new rules give German and French banks more breathing room to adapt their capital structure...MORE
There is a THEY, and They Know
I've been asked to stand in as drum majorette at the tinfoil hat parade (see below)

From Davos 2007 (the one before the last one):
"…a large hedge fund fails due to sudden asset devaluations. Herd behaviour causes global liquidity to dry up. Neither the G8 nor the G20 is able to coordinate a response. Central banks inject liquidity ad hoc, creating inflationary risks. As black box models fail to adjust, financial contagion continues."
Page 14, "Global Risks, 2007"- World Economic Forum; January, 2oo7.

Pretty good call. Now, if you'll excuse me,

"Il faut bien que je les suive, puisque je suis leur chef."*
Phrase historique prononcée à Paris - 1848

*Schoolboy translation: "I must follow them for I am their leader."
The Grassy Knoll Theory of Investing
...And remember the term "Phantasmagorical* Pistachio"**.

*Main Entry:
French phantasmagorie, from phantasme phantasm (from Old French fantasme) + -agorie (perhaps from Greek agora assembly) — more at agora
circa 1802
1: an exhibition of optical effects and illusions
2 a
: a constantly shifting complex succession of things seen or imagined
b: a scene that constantly changes
: a bizarre or fantastic combination, collection, or assemblage
**Roughly: "Disoriented nut"

EEEvil Conservative