Bank regulation to prevent another crash recedes into the distance

Goldman Sachs, shamed from deferring its bonus payments into the next financial year so that its staff could enjoy the lower tax rate, has just enjoyed a bumper year. Davos men and women are prospering. No structural adjustment for them.
Goldman Sachs, shamed from deferring its bonus payments into the next financial year so that its staff could enjoy the lower tax rate, has just enjoyed a bumper year. Davos men and women are prospering. No structural adjustment for them.

 

February 1st, 2013

Quietly, with no fanfare and no headlines, the banks are steadily chipping away at the measures, meagre and delayed as they already are, designed to prevent another global financial crash.  
 
First, the capital adequacy ratios – the financial reserves that have be held to prevent or absorb any run on the bank that might develop – have been drastically weakened as a result of bank lobbying behind the scenes.  
 
At the time of the great crash of 2008-9 the level of tier 1 capital that had to be held in relation to a bank’s total risk-weighted credit exposures stood at 2.5%, which is fatally low.   The new Basel III level set by international regulators in 2011 (revised slightly in June 2012)was still only 4%, well short of the 7% or even 10% demanded by reformers.   Thus it took 4 years after the crash for even the slightest (and inadequate) tightening of the rules.   However, worse was to follow.

The pusillanimity of the new capital reserve requirements was accompanied by almost unbelievable procrastination.  

It was decided that the new rules would not apply till 2019, as though the risk of a fresh crash could attend upon the convenience of the bankers.   As if this was not bad enough, Osborne, desperate to get the banks lending to industry to re-start growth, conceded to the banks that the ratio would be reduced from 4% to 3%, thus reopening the very real risk of another disastrous run on a weak bank.  

The banks, true to form, responded to this inordinate and dangerous concession by increasing their lending to industry virtually not at all.  

To cap it all, the capital adequacy ratio isn’t anyway fit for purpose by itself since under the Basel reform proposals it wasn’t combined with a leverage ratio which (unlike capital adequacy formulae) really would predict the probability that a bank would fail.

Last month the rules were weakened further.   The so-called liquidity coverage ratio – the second arm of the Basel III reforms requiring banks to hold enough cash and easy-to-sell assets to enable them to survive a short-term crisis – was softened by allowing them to hold a wider (and easier) variety of liquid assets towards their buffers and also by changing the calculation methods in ways that significantly reduce the liquidity buffers that have to held.

Now even the ring-fencing itself between the retail and investment arms of banks, as proposed by the Tory-commissioned Vickers report, is being seriously threatened.   This UK report, which is still be implemented nearly 6 years after the crash, was reinforced by very similar recommendations of the EU Liikanen report last October.  

However, it’s not as though ring-fencing is anyway an adequate solution.   Ring-fences (as opposed to a clean statutory break) are just too porous that can end up more like a string vest, a loophole which can easily be turned by City tricksters into a bolt-hole.   Nevertheless that still hasn’t stopped the bankers demanding that ring-fencing is a step too far and should be quietly abandoned.  

Are the regulators and politicians utterly spineless?

Michael Meacher MP

Comments
  • jeffery davies February 6, 2013 at 6:43 pm

    no they jail the poor for claiming a mare 500 but then if you are a bankers you aloud billions and then not even jailed for it still allowed to carry on getting big bonuses and still up to no good yep are they all in it together jeff3

  • Data Matching February 6, 2013 at 8:18 pm

    Benefit claimants, disabled people who have saved money but have not declared it are being hunted down by the attack dogs at Jobcentre plus these people are no better than debt collectors “pure scum” they make their living from raping the claimants of their hard saved savings with the help of HMRC and UK Banks by data matching bank account data with benefit data. This group of claimants/victims are an easy target as they cannot cry out about this calculated and cynical attack by the DWP, JCP, HMRC, masterminded by George Osborne to pillage their savings, and take away their benefits as an extra sadistic twist of punishment.
    These people are branded as criminals by the media and Government.

  • PJO February 7, 2013 at 2:51 pm

    Did we really think these Greedy Bastards would learn from their mistakes?
    Government with it’s Candy Floss restrictions & legislation wont stop these Amoral Shits continuing, business as usual!

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