Comments on: How much capital do the banks need? http://johnredwoodsdiary.com/2008/10/16/how-much-capital-do-the-banks-need/ Incisive and topical campaigns and commentary on today's issues and tomorrow's problems Thu, 09 Feb 2012 20:05:58 +0000 hourly 1 By: Per Kurowski http://johnredwoodsdiary.com/2008/10/16/how-much-capital-do-the-banks-need/#comment-7124 Per Kurowski Sat, 18 Oct 2008 17:32:30 +0000 http://www.johnredwoodsdiary.com/?p=1813#comment-7124 It is not that they have changed the rules. The minimum capital requirements for banks ordained by the central planners in Basel has imbedded in it that when the credit ratings go down they need to put up more capital sort of a infernal pro-cyclicality machine. It is not that they have changed the rules. The minimum capital requirements for banks ordained by the central planners in Basel has imbedded in it that when the credit ratings go down they need to put up more capital sort of a infernal pro-cyclicality machine.

]]> By: Tears for Tear 1 http://johnredwoodsdiary.com/2008/10/16/how-much-capital-do-the-banks-need/#comment-7123 Tears for Tear 1 Thu, 16 Oct 2008 22:56:19 +0000 http://www.johnredwoodsdiary.com/?p=1813#comment-7123 The plan is on the whole well thought through (it was after all Standard Chartered's thinking NOT Gordon Browns) However it is floored because by requiring the banks to increase their target Tier1 it is pro-cyclical and builds on the procyclicality of the BIS ll regulations. The plan should instead have left target tier 1 unchanged and instead insisted on the banks using the new government capital to write down bad loans/bonds and forcing far more transparency and speed on the reporting of their accounts. The plan is on the whole well thought through (it was after all Standard Chartered's thinking NOT Gordon Browns)
However it is floored because by requiring the banks to increase their target Tier1 it is pro-cyclical and builds on the procyclicality of the BIS ll regulations.
The plan should instead have left target tier 1 unchanged and instead insisted on the banks using the new government capital to write down bad loans/bonds and forcing far more transparency and speed on the reporting of their accounts.

]]> By: Jonathan Bryce http://johnredwoodsdiary.com/2008/10/16/how-much-capital-do-the-banks-need/#comment-7122 Jonathan Bryce Thu, 16 Oct 2008 22:53:00 +0000 http://www.johnredwoodsdiary.com/?p=1813#comment-7122 Actually, I think the government has a good point here. Alex Salmond gave Iceland as an example of what Scotland would be like if it became independent, and I think it is actually a good comparison. Three of the big 5 banks in the UK are based in Scotland (including Lloyds although most HQ functions are carried out in London), and their assets are about 31 times bigger than Scotland's GDP. Just like in Iceland, there is no way an independent Scotland could support these three banks in times of trouble, and this would have grave repercussions, both in Edinburgh, and around the world where these banks operate. Actually, I think the government has a good point here. Alex Salmond gave Iceland as an example of what Scotland would be like if it became independent, and I think it is actually a good comparison.

Three of the big 5 banks in the UK are based in Scotland (including Lloyds although most HQ functions are carried out in London), and their assets are about 31 times bigger than Scotland's GDP.

Just like in Iceland, there is no way an independent Scotland could support these three banks in times of trouble, and this would have grave repercussions, both in Edinburgh, and around the world where these banks operate.

]]> By: Tears for Tear 1 http://johnredwoodsdiary.com/2008/10/16/how-much-capital-do-the-banks-need/#comment-7121 Tears for Tear 1 Thu, 16 Oct 2008 22:22:02 +0000 http://www.johnredwoodsdiary.com/?p=1813#comment-7121 According to the BBC news, on Monday, when stock markets were rising, Gordon Brown' s plan to save the world was working. Earlier this evening when stock markets were falling again, the BBC news was convinced that now the Bank rescue plans were failing. However at that point in time it appears that the plans were known as "the US and European" bank rescue plans. If we wanted a State Broadcaster we could fund the BBC direct from taxes, saving on the cost of raising the license fee, and at least then we'd know were we all stood. According to the BBC news, on Monday, when stock markets were rising, Gordon Brown' s plan to save the world was working.

Earlier this evening when stock markets were falling again, the BBC news was convinced that now the Bank rescue plans were failing. However at that point in time it appears that the plans were known as "the US and European" bank rescue plans.

If we wanted a State Broadcaster we could fund the BBC direct from taxes, saving on the cost of raising the license fee, and at least then we'd know were we all stood.

]]> By: Bazman http://johnredwoodsdiary.com/2008/10/16/how-much-capital-do-the-banks-need/#comment-7120 Bazman Thu, 16 Oct 2008 22:09:16 +0000 http://www.johnredwoodsdiary.com/?p=1813#comment-7120 Markets first. Democracy second. Would Conservatives do it any other way? The piper calls the tune. Conservatives never forget this! Oh! You have! Markets first. Democracy second. Would Conservatives do it any other way? The piper calls the tune. Conservatives never forget this! Oh! You have!

]]> By: giles http://johnredwoodsdiary.com/2008/10/16/how-much-capital-do-the-banks-need/#comment-7119 giles Thu, 16 Oct 2008 20:03:00 +0000 http://www.johnredwoodsdiary.com/?p=1813#comment-7119 Nice to have a post that doesn't say we need to slash interest rates. I agree with a lot of what you say John, but I don't understand why you continually say that cheap money is part of the solution. As far as I can see cheap money was a large part part of the problem. The .5 cut in interest rates only appears to have increased the banks profit margins as very few are passing it on. Are you moving away from this position? Nice to have a post that doesn't say we need to slash interest rates. I agree with a lot of what you say John, but I don't understand why you continually say that cheap money is part of the solution.

As far as I can see cheap money was a large part part of the problem. The .5 cut in interest rates only appears to have increased the banks profit margins as very few are passing it on.

Are you moving away from this position?

]]> By: mikestallard http://johnredwoodsdiary.com/2008/10/16/how-much-capital-do-the-banks-need/#comment-7118 mikestallard Thu, 16 Oct 2008 16:42:27 +0000 http://www.johnredwoodsdiary.com/?p=1813#comment-7118 We know, from a decade of Chancellorship, that Mr Brown likes to micro manage everything and that he is determined, above all, to improve the lot of the poor. Now he has nationalised several of the banks. Already politics are getting tied into the banking system at the Glenrothes by election, which we know he is taking very seriously. And today, to the scandal of the "You and Yours" programme this morning, the Telegraph has noticed that Northern Rock is being questioned by back benchers about the very many repossession orders. One thing which has surprised me is how very quickly the government is beginning to interfere in the banks which it now controls. We know, from a decade of Chancellorship, that Mr Brown likes to micro manage everything and that he is determined, above all, to improve the lot of the poor.
Now he has nationalised several of the banks.
Already politics are getting tied into the banking system at the Glenrothes by election, which we know he is taking very seriously.
And today, to the scandal of the "You and Yours" programme this morning, the Telegraph has noticed that Northern Rock is being questioned by back benchers about the very many repossession orders.
One thing which has surprised me is how very quickly the government is beginning to interfere in the banks which it now controls.

]]> By: Rush-is-Right http://johnredwoodsdiary.com/2008/10/16/how-much-capital-do-the-banks-need/#comment-7117 Rush-is-Right Thu, 16 Oct 2008 14:26:50 +0000 http://www.johnredwoodsdiary.com/?p=1813#comment-7117 <i>We are now being told by a triumphant government that the large sums proposed for these banks show why an indepednent Scotland would not work, because such sums would be too much for Scottish taxpayers’ pockets without the help of English taxpayers.</i> Perhaps an independent Scotland would not have been dragged into such a mess in the first place? We are now being told by a triumphant government that the large sums proposed for these banks show why an indepednent Scotland would not work, because such sums would be too much for Scottish taxpayers’ pockets without the help of English taxpayers.

Perhaps an independent Scotland would not have been dragged into such a mess in the first place?

]]> By: pp http://johnredwoodsdiary.com/2008/10/16/how-much-capital-do-the-banks-need/#comment-7116 pp Thu, 16 Oct 2008 12:24:23 +0000 http://www.johnredwoodsdiary.com/?p=1813#comment-7116 Thanks for your response - however it still involves secrecy. If capital adequacy is a key performance indicator for a bank, then all banks should publish these figures regularly (hourly, daily or whatever) for all to see. Every one can then take a view on them (shareholders, regulators, public and government) noone need be approached individually. And such transparency would help ensure that issues were picked up very early. No fear, no panic, no rumours, no secrecy, no manipulation (and no semi official leaks to the media...) - just facts - for everyone to do with them as they will. reply: All banks do publish their ratios with their regular figures. Of course it needs to be transparent. What shouldn be secret is any fear by the Regulator, as the fear might be unfounded.If there is a problem then it needs to be tackled openly and quickly. Thanks for your response – however it still involves secrecy.

If capital adequacy is a key performance indicator for a bank, then all banks should publish these figures regularly (hourly, daily or whatever) for all to see.

Every one can then take a view on them (shareholders, regulators, public and government) noone need be approached individually.

And such transparency would help ensure that issues were picked up very early.

No fear, no panic, no rumours, no secrecy, no manipulation (and no semi official leaks to the media…) – just facts – for everyone to do with them as they will.

reply: All banks do publish their ratios with their regular figures. Of course it needs to be transparent. What shouldn be secret is any fear by the Regulator, as the fear might be unfounded.If there is a problem then it needs to be tackled openly and quickly.

]]> By: no one http://johnredwoodsdiary.com/2008/10/16/how-much-capital-do-the-banks-need/#comment-7115 no one Thu, 16 Oct 2008 12:16:00 +0000 http://www.johnredwoodsdiary.com/?p=1813#comment-7115 they need enough to pay me my account balance back when i decide i want it :) they need enough to pay me my account balance back when i decide i want it :)

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