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Finally viewing with alarm bank retrenchment across the globe, regulators are set to ease...

Finally viewing with alarm bank retrenchment across the globe, regulators are set to ease stringent new capital rules - known as Basel III - set to begin kicking in in 2013. China has already postponed its tough new rules, and the U.K. "capitulation" this week suggests that country's regulators have seen the light.
Comments (75)
  • News lke that means shareprice for big banks like Citi, B.O.A., JPMorgan etc. are going to be climbing next week.
    16 Jun 2012, 12:05 PM Reply Like
  • So much for FAZ. Do I have to wait until another decade to make a profit?
    16 Jun 2012, 12:07 PM Reply Like
  • Great move, its about time.
    16 Jun 2012, 12:17 PM Reply Like
  • In the past it was known as appeasement.
    The bankers win again.
    16 Jun 2012, 12:28 PM Reply Like
  • In the past it was also known as extortion.
    16 Jun 2012, 12:34 PM Reply Like
  • Increased capital rules are just a tax on economic activity. They are necessary but every time you increase them you will get less output. Simple end of story.


    If we want less output then increase them and nobody whine about lower loan volumes and higher UE. From a timing standpoint you don't want to increase them when the economy is struggling.


    Appeasement and extortion is like a doctor telling an anorexic to eat or die and the patient grumbles the doctor is a bully.
    16 Jun 2012, 05:11 PM Reply Like
  • heh heh


    Right on TVP.
    17 Jun 2012, 02:33 AM Reply Like
  • It really depends on the risk the banks take on with their increased "output" as you put it. In 2007, if they took on more MBS's. they were self destroying, and because they were doing so in masse, they were infecting the entire world's financial and economic systems. If the system was truly working at that time, their increased capital requirements should have been 100%. Under your theory requiring them to hold equity to cover what would become their really, really, really bad bets was in fact decreasing their "output," yet logic shows us forcing them to hold 100% capital requirements on the MBS's in 2007 was a better use of capital.
    19 Jun 2012, 11:48 PM Reply Like
  • That is not a correct conclusion. If you increase capital requirements which is essentially a tax on earnings then they have to take more risk to have the same return on capital because more capital is idle. Therefore the capital that is in use must return more profit. This is a non virtuous cycle.


    And I did not propose a risk based capital structure so not sure what you are talking about there.
    20 Jun 2012, 04:36 AM Reply Like
  • Basel III was for banks akin to the government telling an individual that, rather than investing your money to make more income to improve your life, you should spend it all on a $10MM life insurance policy in case you dropped dead someday. Sometimes, the real cost of making the future "fail-safe" is excessive and counterproductive.
    16 Jun 2012, 12:38 PM Reply Like
  • Why buy life insurance when you're a zombie bank?
    16 Jun 2012, 02:44 PM Reply Like
  • Correct, a low leverage ratio did not cause the financial crisis or the housing bubble. What caused it was individual greed, and bonus and incentive systems that promoted moral hazard and adverse selection.
    16 Jun 2012, 03:13 PM Reply Like
  • Greed gets people out of bed in the morning.


    Core issue was bad underwriting. If everyone who got a loan could pay it back then we would not have this discussion. Liar loans and all the other BS was rotten to the core.
    16 Jun 2012, 05:14 PM Reply Like
  • And the bad underwriting was caused by excess greed and skewed bonus plans.
    16 Jun 2012, 08:08 PM Reply Like
  • Excess greed is something new? Everyone needs to grow up on that count. People have died because of greed over the centuries.


    Skewed bonus plans is also just another throw away line. What does that mean and who has those bonuses and how much of the company do they own? There were companies in business for almost 100 years that went out of business and their people always got great bonuses. One could claim correlation but not a 1:1 relationship.
    16 Jun 2012, 08:23 PM Reply Like
  • Without greed, there is no incentive. Without incentives there are only long lines and hand outs of hard Russian black bread.


    Perhaps that's what the political nutjobs want.


    You want to regulate the banks? Regulate the people who use them. They were also infected with (wait for it)..... greed.


    17 Jun 2012, 02:34 AM Reply Like
  • What is easier to control? Leverage ratios or human nature? Leverage ratios.....
    17 Jun 2012, 12:58 PM Reply Like
  • The solution is to not back stop companies with taxpayer money, allowing greedy idiots to go bankrupt.
    17 Jun 2012, 12:59 PM Reply Like
  • Remove regulation. Let your dollar regulate. If Lehman and the others received no taxpayer backstop, all the idiots who worked for them and all the idiots who invested in them would suffer. We would probably would have had a depression, but we would have probably recovered by now. Capitalism works. We need to act like adults and realize that. Greed works. The profit motive works. I'm at work while typing this :P
    17 Jun 2012, 01:02 PM Reply Like
  • Tomas,


    Look at what happened. Mortgage brokers were told to approve anyone and everyone for any type of loan because real estate was a "sure bet." These same mortgage brokers work off commission as do real estate agents. The general thinking was that even if the homeowners defaulted the bank could sell the underlying asset at a higher price then what they loaned out. Not to mention all the money the banks (and their executives) were making selling these "deal" securitized loans to unknowing/naive investors. No accountability and no consequences with excess greed added in makes for a ticking time bomb. I have no problems with greed (I am a victim of that disease myself), but when it leads to a breakdown of the global economy and trillions of personal wealth lost it is not good for anybody.
    25 Jun 2012, 10:56 AM Reply Like
  • AM


    I am just saying that greed is nothing new. It has caused wars and all kinds of mania over the century. Greed or better yet self interest on a defined playing field is not a bad thing.


    The trigger point for the breakdown in the past 10 years was ultra low interest rates which left savers starving for yield (greed) and thereby a search for higher yielding assets which was matched against a rising housing market. So the risk was supposed to be nil which on this board everyone should know does not exist. But almost every institution was on board and greedy for money, votes, power, homes, prestige, etc and only a few people were shorting it and raising their voice.


    A calm regulator might have helped too but it is hard to hold back the forces that want everyone to own a home.
    25 Jun 2012, 01:53 PM Reply Like
  • Loosening up the proposed rules will allow everyone to pretend the banks are still solvent for a few more years.
    16 Jun 2012, 02:36 PM Reply Like
  • Maybe they will take their interest free tax payer money and with decreased regulation actually make some real loans for a change.
    Should be good for financials in Europe especially and (FXE)
    16 Jun 2012, 02:38 PM Reply Like
  • Most of Europe's banks, England's included, still need massive capital raises in order to be viable long term. It's hard to comply with Basel 3 when you are having trouble meeting Basel 1. Europe 2012 is basically the US 2008-2009. It might not get as ugly, but the financial system over there needs a large injection of capital, and the ECB needs to cut rates. The German's have to capitulate if they want to save the currency union.
    16 Jun 2012, 02:40 PM Reply Like
  • Mike,
    What are the Germans supposed to capitulate to? Guaranteeing every PIIGS debt? Agreeing to inflation and massive ongoing currency devaluation? Agreeing to gifts and transfers forever to PIIGS countries? Agreeing to fund ever increasing debt in the weakest EU countries?
    16 Jun 2012, 05:08 PM Reply Like
  • Higher inflation levels, longer payback periods for bailout loans, and less harsh austerity. In the US, some states are net payers to the Federal Government, and some are net recievers. The EU is going to have to work like that. Germany taxes its citizens and transfers that wealth to Greece, and in return the German export sector benefits from a lower exchange rate than if Greece was out of the common currency.


    My point was that fighting inflation in German when the rest of the EU nations are in recession is not how this crisis is going to be solved. The ECB should have never raised rates, and they have been too slow to cut rates.
    16 Jun 2012, 07:56 PM Reply Like
  • Heh, they could capitulate by removing all their protectionist policies that enforce massive wage disparities between Germany and Greece. Let outsourcing take care of what the lack of a floating exchange rate can't. However, given the firestorm of outrage it caused when Nokia moved a factory from Germany to Romania where they could pay their workers 90% less, it's obvious how Germany really views the Euro... as a club to dominate the rest of Europe with.
    17 Jun 2012, 11:13 AM Reply Like
  • Exactly. Free the supposed "free markets".
    17 Jun 2012, 01:22 PM Reply Like
  • Tack
    the real cost of making the future "fail-safe" is excessive and counterproductive.
    'it is too big to fail' fail-safe life insurance policy is already build in.
    Basel III is redundant excessive and counterproductive solution.


    Similarly, we Individuals have to invest money to grow our income and to improve our lives and their libidos.
    16 Jun 2012, 02:40 PM Reply Like
  • "...and to improve our lives and their libidos."


    Huh? We have to improve our bankers sex drive? Who slipped that one into Basel III - France? (I hope it wasn't the Greeks...)
    16 Jun 2012, 04:31 PM Reply Like
  • If our so-called leaders had put FNM and FRE into run-off (allowing the private sector to re-enter the housing market) America would have saved trillions and real estate would already be recovering.
    16 Jun 2012, 02:56 PM Reply Like
  • Government should never have gotten involved in the first place, at least not in such a large scale.
    16 Jun 2012, 03:14 PM Reply Like
  • There's still too many houses and not enough qualified buyers. The housing market will recover when the foreclosures are allowed to go through the system, and prices fall to a market clearing level. The government can try to fight all they want, but its Economics 101.
    16 Jun 2012, 07:58 PM Reply Like
  • Market is turning in some places as Euro money is flowing in.
    16 Jun 2012, 08:24 PM Reply Like
  • Places like Miami that saw huge overbuilds and are down 50% from the peak.
    16 Jun 2012, 11:42 PM Reply Like
  • Government used to promise a chicken in every pot. In 2005 it was a McMansion on every lot.


    Aren't entitlements great?


    Jimmy bend-a-nail Carter ensured that redlining would get its first start in re to housing. The multiculturalism of the 1990's ensured it would be completed, hammering the final nail into the coffin. Fannie, Freddie & Ginnie came along for the party. Big goobermint sent out invitations and Greenspan was in charge of tapping the keg for the rager.


    Leftism is wonderful, iddn't it?
    17 Jun 2012, 02:39 AM Reply Like
  • That is why foreign money is pouring in.
    17 Jun 2012, 11:25 AM Reply Like
  • The only thing that most people agree on is that they want something free and will give up freedom to get it. Ironic and long term stupid.


    Esau selling his birthright for a mess of pottage comes to mind.
    17 Jun 2012, 11:26 AM Reply Like
  • How much of that is foreigners liking the US housing market, vs. trying to get their money into hard assets outside of Europe?
    17 Jun 2012, 11:48 AM Reply Like
  • MM:


    Recent survey pegged European money at only 8.9% of investment in SW Florida, completely dwarfed by Brazil and rest of Latin America.


    (Wish I could find link.)
    17 Jun 2012, 12:15 PM Reply Like
  • Yea I've seen some of those reports. I still find it hard to believe that Foreigners buying second homes in a resort city is a positive sign for the housing market as a whole. Its like saying that because Manhattan values are are pre-recession highs, the US market must be about to turn. Miami and NYC have different local factors favoring them that inland Florida and Upstate NY do not share. Aside from the bright spots, I think the housing market still has not found a bottom.
    17 Jun 2012, 01:07 PM Reply Like
  • MM:


    On the other hand, historically, the housing market has typically been lead by upsurges in C, FL, AZ, etc., and all of these markets are showing sign of life. Housing markets don't get led by Kansas.


    Now, while its doubtful that things will take off, they probably aren't going to decline appreciably, either. In particular, rent are rising briskly, making homes again competitive.
    17 Jun 2012, 01:32 PM Reply Like
  • Southern Kansas by the oil fields is actually suffering a housing shortage, but that's an isolated instance. I agree that we've seen the worst of the declines, but lower rates are being offset by a return of down payment criteria (crazy I know). In addition, there are a lot of people my age (26) making student loan payments between $400 and $1,000 a month, greatly cutting down on the likelyhood that home ownership % of my generation will match those of the baby boomers.


    Just my thoughts. For the record, I'd buy a condo in Miami if I could afford it. Prices around $180,000 seem like a good deal for a vacation house to get away from the cold Northeast winters.
    17 Jun 2012, 03:17 PM Reply Like
  • MM


    Go in with a few buddies and buy one then you got something.
    17 Jun 2012, 10:54 PM Reply Like
  • Unfortunately for me, my friends are not the fiscally responsible bunch. I'm paying my way through grad school anyway, so I have very little free cash as it is. If only I had access to the 0% interest rate at the Fed, my life would be so much more exciting haha.
    17 Jun 2012, 11:29 PM Reply Like
  • Well 3% is not bad and really you might never see these rates again in your life so don't sneeze at them.
    19 Jun 2012, 10:08 AM Reply Like
  • I think I've got another year or so before rates begin to rise, so I've got a little bit of time I think. Maybe the whole SA community should buy in Miami, so we could have these "lively discussions" in person haha.
    19 Jun 2012, 10:38 AM Reply Like
  • That would be awesome wouldn't it?


    I would not even care if we agreed on anything. LOL.
    19 Jun 2012, 12:42 PM Reply Like
  • This is going to let loose a whole torrent of liquidity. With slack loan demand and housing still sluggish, this is going to boost equity values across the board. More risky investments will be taken on, Europe will be saved, Asia will spurn Treasury issues, gold will tank. Then with the first whiff of inflation, the whole process will reverse.


    Its just like a yo-yo but the coordinated effort of governments world wide are now going to pull the string very hard. Sky's the limit on the upside.
    16 Jun 2012, 03:16 PM Reply Like
  • Totally agree. If equity risk premiums normalized we are looking at a doubling of the stock market over the next two to three years.
    16 Jun 2012, 03:54 PM Reply Like
  • I wonder if the fact that the recent losses on the derivateves due to naked short bets still factor into this new found confidence in JPM. To my understanding, these losses are potentially without limit and some say perhaps a lot more than the 4 to 7 billion being talked about.
    16 Jun 2012, 03:54 PM Reply Like
  • How can the losses be without limit? That's nonsense. That is not how derivatives work. Derivatives are nothing more than insurance contracts. If X happens you get paid Y if not I keep the premium. My guess is the JPM credit default swaps cannot generate realized losses until 2017. It is even possible they could make money on this bet if things improve between now and then. Why are these things marked to market? I have no clue. The correct accounting would be to set reserves against probable pay outs depending on the movement of the underlying asset price. In other words treat these things like insurance.
    17 Jun 2012, 12:03 AM Reply Like
  • Yes baby, lever up more. If it works somebody gets paid. If not, oh well the taxpayers are firmly behind all that ... no worries.
    16 Jun 2012, 04:23 PM Reply Like
  • If Basel 3 gets dumped it's bad news indeed. I'd rather have less profitable and safer banks than vice versa, especially when thanks to moral hazard and too big to fail, you KNOW they'll inevitably screw up and let us pick up the tab.


    To those expecting massive stock price surges due to liquidity injections, think again. LTRO, QE etc. have worked for the markets, but each injection created a shorter time frame for the boost. Any further liquidity will create even less impetus to the point of zero effect. As long as the underlying economies are not getting off the ground, no amount of liquidity or deficit spending will create a healthy and sustainable economy. Stop this centrally planned and over leveraged madness, we are just digging deeper graves.
    16 Jun 2012, 05:36 PM Reply Like
  • If through regulations and reserve requirements you make it impossible for banks to make money,they start acting like poor people,who give up on trying to make an honest living, and buy lottery tickets, instead.
    16 Jun 2012, 05:50 PM Reply Like
  • Financial repression disguised as the new banking regulations. Banks used as vehicles to bail out governments around the world and forced to buy up sovereign debt. 'Psssst. Just raise your reserve requirements. It'll make all the bad things go away.'


    17 Jun 2012, 02:44 AM Reply Like
  • Yah, let them banks lever up to whatever they like. What could possibly go wrong?
    16 Jun 2012, 06:01 PM Reply Like
  • If anyone who is talking about leverage wants to state what they believe the correct leverage ratio is for a bank and why including resulting UE levels and impact to economic output I am all ears. Simply asking for more capital is Pavlov's dog response to this subject.


    And I would not copy European economic leadership as they are a disaster.
    16 Jun 2012, 06:07 PM Reply Like
  • Basil III seems to think it should be between 8 and 10 to one.
    17 Jun 2012, 12:05 AM Reply Like
  • According to that very primitive religion called capitalism, if everyone is totally greedy, and selfish, we will all get rich. That is, if everyone literally is a psychopath with no concern for anyone except herself, the competing pathologies will produce the common good.


    The problem is that the original prophets of this cult--Adam Smith, Ricardo, Turgot, etc.–thought the “market” would contain–in this case–hundreds of thousands of competing banks. Instead we have, what? a dozen large banks worldwide, all “too big to fail.” It also never occurred to the Flounders that the government would rescue insane gamblers through FDIC.


    So when, in their crazed greed, morons like Dimon make money, they take millions in salary. When their mindless gambling fails, the taxpayers rescue them.


    The solution is truly simple. When a bank fails, the government seizes it. The existing shareholders, bond-holders get nothing, and the top dozen executives are bared from any form of banking for the rest of their lives. The government also makes a maximum effort to claw back the salaries they have received in the past.


    The government then recapitalize the bank, splits it into 50 or 100 pieces, which go to work as plain vanilla banks, taking in deposits and loaning money to entrepreneurs and folk who can afford to buy homes. If some one wants to start a fund for gambling on derivatives, he can do so. But the government makes it very clear that the gambling fund is NOT a bank; when the gamblers fail, they will not be Rescued in any way.


    I defy anyone to fine any fault with my logic. If anyone disagrees, he clearly is a Communist. Since what I am suggesting is called Free-Market Capitalism. It’s what Adam Smith and the other early prophets of capitalism intended. And it’s the way banking worked until only a few decades ago. Indeed, since bank checks, double-entry book keeping, credit cards, and mutual funds all were invented by 14th century Italian bankers, what I suggest is the way banking worked for something like 600 years.


    But today the banksters and other greedy plutocrats pour trillions into negative ads at election time, making it impossible to elect anyone sane. As a result, we will go on with this charade until it destroys civilization for good. After all, the banksters created the current depression. The next depression the banksters create will surely be worse. This next time, it will be the corrupt, irresponsible crooks and liars running the European banks that will destroy the world.
    16 Jun 2012, 06:45 PM Reply Like
  • Why stop at banks or lifetime bans? When any business fails, just have all of top management executed.
    16 Jun 2012, 07:05 PM Reply Like
  • DJ


    Hyperbole and the apocalypse all in one post. That is a first for me.


    I agree with you if a bank fails the government should take it and split it up and the stockholders get nothing. That is typically the definition of bankruptcy so why not? Denying bond holder rights is another story as they have a claim that is not far from a depositors claim. When I deposit my money with the bank I am agreeing to loan them my money so they can re-lend it. And they pay me an interest rate for my loan which they call a deposit. Whatever the case that is just an aside.


    There were a lot of lenders or creditors in the Middle Ages that did the local banking and they were called Lords and they enriched themselves through Feudalism and charged exorbitant fees and rates. So small and local operators is not a panacea. If government regulates rates then government is already involved in banking. In summary small lenders can rape you just as effectively if not more so because they are below the radar.


    Secondly the US government was involved in banking early because they needed a common currency and needed to pay an army that was ready to quit and need to encourage commerce. All those things require banking institutions. We had a problem in this country also with people opening banks and taking deposits and running for the hills. Therefore deposit insurance. Government has been involved in banking forever. Works OK and maybe someone else is smarter but we are stumbling along fairly well.


    If derivatives were the only problem then I would guess that we never had widespread bank failures in the past. Whoops. Wrong again. We had massive failures in the 80's alone. Banks take risk every day and changes in the economy and markets move that risk every day. To the extent that derivatives help them manage that risk great but most people don't understand derivatives anyways so I will leave it at that.


    And you are so wrong when you think it is banks ruining the world. The root cause is the governments acting on behalf of people that want a lot and don't want to do much to earn it. Banks just facilitate the transactions.
    16 Jun 2012, 08:42 PM Reply Like
  • Maybe someday we'll have real capitalism Jan. Until then, we will socialize the losses thru the taxpayer and then blame capitalism. LOL.


    The problem is that we didn't follow the 1980's S&L crisis this time around. We pretended government knew better this time thru Hank Paulson and his gang and ended up backstopping more zombies when the banks should have been Baby Belled into fractions of their original selves.


    They would have been much more prosperous and small business lending would have taken off. But no, capitalism was the problem. hahahaha. Good one.


    17 Jun 2012, 02:53 AM Reply Like
  • I disagree with many of your opinions. Free markets are driven by greed and the population as a whole will not stand for things universally deemed repugnant. This limits capitalistic endeavours to those that are tolerated by the majority. Considering that the human race has only been civilized for maybe 10 to 15,000 years versus billions of years on cosmological time scales, I think we need to let free markets run their course. Perhaps in another 10,000 years or so we can make a decision then. In my opinion capitalism is the most successful system and even the USA has not truly embraced completely free markets ever.
    17 Jun 2012, 01:30 PM Reply Like
  • The TBTF banks are going to skyrocket!


    Great news.
    16 Jun 2012, 07:52 PM Reply Like
  • Maybe AIG goes up to and the government can sell more stock and get more TARP back. That would be OK.
    16 Jun 2012, 08:25 PM Reply Like
  • This is good news....a balance between complete safety and the ability to respond to legitimate economic demand profitably must be struck . The banks have made mistakes but they are crucial to any recovery.
    16 Jun 2012, 08:33 PM Reply Like
  • No this is bad news it means banks cannot raise capital at the moment.
    17 Jun 2012, 12:07 AM Reply Like
  • Seems the politicos are doing their jobs famously. Most Americans still blame the banks right on cue, but no worries. Maybe Elizabeth Warren can save us all with her snappy new ideas and force banks to send us 500 more pages of dead trees full of boilerplate just to open a credit card account. Oh, thanks Warren, genius honey.


    Small business lending is at zero. It will stay there until the hate fest ends. Who knows? It may never end until we reach the dark ages again, all for our good don't you know. The government tells us so. They are so nice, the way the want to dress us up in the morning and put us to sleep in the evening. Ah, parents.


    No wonder there's a capital strike. There's a war on capital itself.


    We will have unemployment for as long as is necessary. May the beatings continue until morale improves. Perhaps this will be Obama's new campaign slogan.
    17 Jun 2012, 02:58 AM Reply Like
  • I guess people's ideas or credit ratings must suck. I am just a worker bee and I have total revolving personal credit lines of almost $100,000. Perhaps this is not enough for most small businesses though.
    17 Jun 2012, 01:38 PM Reply Like
  • Maybe the US big banks will skyrocket,but, CPAs who will not value assets at bizarre valuations are being let go or are walking on there own ! ( this told to me by my CPA as his firm walked from C.


    CDS swap exposure for the big banks like MS C JPM etc is in the trillions and off balance sheets,so, the so called stress test was the biggest joke of this decade !


    I have been around the block for more than 6 decades and I realize the info is shocking and worth opining on,but, it's irrelevant as this will continue and timing your buying an selling still works.


    My plan ! I see the big banks unable to grow there income at decent rates under the new Volker rules and other restrictions now installed. I also see that we here on SA are the only game in town besides the bot computers ,so, the trading incomes continue to shrink.. Thus, all the talk about to big to fail and banks are too large is a smoke screen.


    The only way for BAC JPM an the MS's is to buy the little banks who are profitable and there are many little gems ! That is where I am looking. Small gems in Florida especially and one or two in Nevada and Arizona. These little fish will surly get gobbled up as the banks must grow income.


    I'm looking ahead and I am not paying attention the b/s as it will be around long after all of us ! DL
    17 Jun 2012, 04:12 AM Reply Like
  • Not a bad strategy on little banks.
    17 Jun 2012, 11:31 AM Reply Like
  • The US Gov isnt going to let BAC or JPM buy more deposits. Maybe if PNC or Capital One wanted to buy banks they'd be able to, but I don't think any banks that aren't already considered systemically important are going to buy enough assets to become systemically important.
    17 Jun 2012, 11:51 AM Reply Like
  • Much more likely for the larger banks to target regionals, not small community banks. Keep eyes on: KEY, HBAN, STI, FITB, RF, etc.
    17 Jun 2012, 12:17 PM Reply Like
  • Does anyone know the source of this post? Easing of Basel III? thks
    18 Jun 2012, 01:07 PM Reply Like
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