Against the backdrop of recent European bank mergers, it is worthwhile examining the effects of acquisitions on regulatory capital. This is interesting because many European banks trade below book value. Normally, firms that acquire other firms pay a premium over book value to purchase the target firm. This premium is called goodwill. However, with the… Read More Badwill accounting
Yesterday, the RBNZ announced the release of submissions on the last capital review paper. A whopping 161 submitters shared their views on the Reserve Bank’s capital proposals. This is significant for sure. It also confirms how interesting bank capital regulation is! I quickly found my own contributions. Three this time, but I wonder why the… Read More The international financial institution that the RBNZ ignored
Today the Wall Street Journal reported on an alleged loophole in EU bank capital rules. The loophole pertains to deferred tax assets (DTAs), a regulatory area where tax rules and accounting rules meet. Apparently some countries exploit a DTA loophole: Italy, Spain, Portugal and Greece. Uh oh, these countries, the usual suspects. There is something really wrong here.… Read More The Italian DTAs
The European Commission is holding a public consultation to seek views from all interested parties on their experience of Regulation 1606/2002 (‘the IAS Regulation’). The results of this public consultation will feed into the European Commission’s evaluation of the IAS Regulation. This is a great initiative, and I encourage you to fill out the questionnaire. See… Read More EU consults on the impact of International Financial Reporting Standards (IFRS)
What surprised me this week about the capital calculation cock-up of Bank of America Meryll Linch were the reactions of the press. The financial press responded to this gaffe by highlighting the difficulties of calculating capital. Reuters, for example wrote: “The announcement illustrates how difficult it is to determine appropriate capital levels for the biggest banks.” Capital… Read More Bank of America, nothing complex, it’s noblesse oblige!
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.
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… Read More Do Regulatory Bank Capital Adjustments actually work?
Among the many publications that the EBA posted on its website last week, the Technical advice to the Commission (EC) on the treatment of unrealized gains deserves attention. Not only because of its content, but also because of the clarity, depth, and breadth of covering the issue of unrealized gains. Here is the context: EBA’s advice… Read More EBA advises Europe to overturn Basel III rule on unrealized gains
While I digest, here is the pdf. A daunting task for sure, however, I really wonder … will 8% be sufficient to sort the men from the boys? We shall see next year. “Capital thresholds will be set as a benchmark for the outcomes of the exercise. The capital benchmark will be set at 8%… Read More Jay: the ECB comprehensive assessment is out!
The European Banking Authority (EBA) released today its final technical standards on supervisory reporting on Non-Performing Exposures and Forbearance, which will provide consistent indicators of asset quality of banks across the European Union. The EBA also issued recommendations on asset quality reviews (AQRs) aimed at supporting existing and/or planned reviews across the EU. See link… Read More Jay! EBA publishes standards on NPL, Forbearance, and AQR