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  • European Banking System Undercapitalized By 1.5 Trillion Euros, With A Conservative CET1 Ratio [View article]
    I don't agree with you... Guaranting the senior claims of banks (90%-95% of total assets) and guaranting that no governements would ever be allowed to default with the printing press power of the ECB would only increase moral hazard and inflation... Do not forget that high inflation leads to lower growth and increasing inequalities ! This is only a short term solution (like almost every one that politicians are implementing). This would certainly decrease the frequency but at the cost of increasing severity of boom & burst cycles.
    Aug 10 08:44 AM | Likes Like |Link to Comment
  • European Banking System Undercapitalized By 1.5 Trillion Euros, With A Conservative CET1 Ratio [View article]
    Don't forget that with lower interest rates there is a greater growth in loans... And what matters is not the interest rates on the loans, but the spread between the interests on the loan and the interests on funding (cost of capital) !

    Banks would lose money during a period of rising interests rates if they have a bad asset-liabilities management, no insider information and if they rely too much on short term funding. In short, Banks would be able to make money if they had a higher liability duration than the asset duration. Because the liability would reduce by more than the assets would...
    Aug 6 08:01 PM | Likes Like |Link to Comment
  • European Banking System Undercapitalized By 1.5 Trillion Euros, With A Conservative CET1 Ratio [View article]
    I read something that coud answer partially to your question here, page 53 (enter page 65 in the pdf) :
    http://bit.ly/1c9m2c9

    It is about Japan and the losses of CET1 capital for a 100 basis points increase in yield:

    "According to estimates by the Bank of Japan (BOJ), a 100 basis point increase in interest rates across the yield curve would lead to mark-to-market losses of 20 percent of Tier 1 capital for regional banks, and of 10 percent for the major banks (Figure 2.38)."

    Never thought I had such a good memory :)
    Aug 6 07:53 PM | Likes Like |Link to Comment
  • European Banking System Undercapitalized By 1.5 Trillion Euros, With A Conservative CET1 Ratio [View article]
    Thank you very much ! I don't intend to do a lot of articles. Only good ones. If I get a lot of good comments, I may do my master thesis on this subject !
    Aug 6 07:07 PM | Likes Like |Link to Comment
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