Structural reform of the EU banking sector, a proposal.

On January 29, the European Commission has proposed new rules to stop the biggest and most complex banks from engaging in the risky activity of proprietary trading. The new rules would also give supervisors the power to require those banks to separate certain potentially risky trading activities from their deposit-taking business if the pursuit of […]

Cetier posts a critical note on capital shortfall research.

My post “The Greatest Hoax on European Bank Capital Shortfalls ever?”, a pastiche on a similarly titled paper by researchers Viral Acharya and Sascha Steffen just appeared on Pieria. Capital shortfall papers, with such a wide range of results are a reason to worry about the correct definition of solvency, or the lack thereof.

Tight new rules for conglomerate solvency calculations are out.

The Council of the European Union adopted regulation regarding regulatory technical standards on the consistent application of calculation methods of solvency for financial conglomerates. This is a complicated piece of regulation that should stop financial conglomerates turning themselves into a risk for financial stability. This should be Europe’s answer to the somewhat weakened implementation of […]

Jay! The CRD IV Technical Standards on Own Funds are out!

The Council of the EU has published a document attaching the text of a European Commission Delegated Regulation of 7 January 2014 supplementing the Capital Requirements Regulation (575/2013) with regard to regulatory technical standards for own funds requirements for institutions (document C(2013) 9763 final). The Regulation will enter into force on the 20th day following its publication in […]

Basel’s New Leverage Ratio: One Step Forward, Two Steps Back – Repost

It has become an old refrain. The Basel Committee on Banking Supervision proposes guidelines to improve banking sector safety. Banks and their lobbies with vast resources mightily fight back. The Basel Committee – which, due to its large, diverse membership, is highly politicized – weakens its proposed guidelines.  This is a repost from the post […]

Do Regulatory Bank Capital Adjustments actually work?

This recent social science research network paper (A primer on regulatory bank capital adjustments) examines regulatory adjustments. These are adjustments that banks apply to book equity to calculate Tier 1 regulatory capital. The paper, relying on U.S. data, documents a decreasing relation between regulatory adjustments and bank solvency. Specifically, low solvency banks benefit from regulatory […]

What happens if banks invest in funds?

Originally posted on Folpmers:
An interesting new Basel Committee paper (Capital requirements for banks’ equity investments in funds, December 2013) presents the framework for calculating the capital requirement for banks’ equity investments in funds. The framework intends to achieve a more risk-sensitive capital treatment for banks’ equity stakes in funds. This risk-sensitivity is implemented by…

Happy New Year!

Many thanks readers for following me, my blog counted 5,005 views this morning when I woke up. It is a special day for bank capital rules, as today Basel III capital rules enter into force in Europe and, if my mind serves me right, in the United States. See the relevant rules in the left […]