Tuesday, June 28, 2011
Capital and liquidity: whose problem?
By Richard Smith, surfacing briefly again.
Jon Daniellsson of the LSE has spotted something odd about the Basel III debate on capital levels:
In the ongoing debate on Basel III, one of the most contentious issues has been the level of bank capital. One might think that the countries making the biggest public noises about problems of excessive risk-taking and speculation would be exactly those demanding higher capital. After all, higher capital directly reduces leverage and risk taking, increasing safety.
Surprisingly, it is the opposite.
* The main champions for more capital are the US, UK and Switzerland,
* The opposition is led by Germany and France.
And he speculates darkly about the reasons why the French and Germans oppose giving national regulators discretion to impose higher capital levels than the new Basel III minimum (7% of RWAs):
Perhaps, the real reason for the French and German opposition to variable capital standards can both be found in weaknesses in those countries’ bank assets and their willingness to use taxpayers’ money to bail out the banks.
Could be, but one would like some evidence. Besides, the other link between the US, UK and Switzerland is that they all recently engaged in really massive banking bailouts, and may not feel like repeating the exercise for a while, thank you.