Just spotted some news that regulators over in Switzerland are trying to add some new regulation that limits the risk that banks can take. They're trying to prevent the same situation from happening again that we saw when we were staring into the whites of the eyes of the financial crisis. Trader's Narrative puts it best in this summary:
Regulators looking to rein in the sort of risk-taking that caused the last financial crisis reached a compromise in Switzerland yesterday that more than doubles capital requirements for the world’s banks while giving them as long as eight years to comply. The Basel Committee on Banking Supervision will require lenders to have common equity equal to at least 7 percent of assets, weighted according to their risk, including a 2.5 percent buffer to withstand future stress. Banks that fail to meet the buffer would be unable to pay dividends. Bank shares gained after the Basel Committee gave firms as much as eight years to comply with stiffer capital requirements, more time than some analysts predicted – Bloomberg - the 7% minimum is a dramatic, but not unexpected, increase from the current 2%. If a bank’s capital ratio falls below 7% or would fall under 7% when the bank is stress tested, then it will be forced to raise capital. If it falls below 4.5%, then it will be put into ‘resolution.’
The biggest problem is that this regulation is coming after the fact. When are people going to start to realize that they need to recognize scenarios that are clearly too good to be true and are going to eventually spin out of control before they actually get to the point that they can derail the entire global economy and take everything down? Until then, we'll just put band-aids on severed limbs and amputate instead of getting to the heart of the matter and providing the correct incentives for people to actually behave properly -- or at least to not behave in a way that is a threat to the entire financial system.
No comments:
Post a Comment