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David Weidner's Writing on the Wall
Sept. 14, 2010, 12:01 a.m. EDT · Recommend (7) · Post:
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By David Weidner, MarketWatch
NEW YORK (MarketWatch) -- The Basel accords may ruin banking and kill credit.
Analysts believe it will put a squeeze on the banking system. Critics, writing in such publications as Bank Accounting & Finance are calling for more study before implementation. Many banks say they won't opt in. One banking executive who studied the plan says what he thought was a "bread box" of rules is more like a "freight train."
Reuters Financial Services Roundtable President Steve Bartlett
The kicker is that those assessments weren't rendered about Basel III, the international standards agreed to during the weekend, they were about Basel II, the 2004 agreement that many banks ignored because it only was required of the biggest national banks.
And that banking executive who saw it as a freight train? That was David Brooks, an executive with Wachovia Corp. Turns out there was a freight train. But it wasn't Basel, it was Brooks's bank, and it was hauling a full payload of worthless mortgages.
How tough was Basel II? Well, look how effective it was at preventing a financial crisis.
The lesson, of course, is that bankers will always complain about someone forcing standards on their institutions. Lobbyist groups such as the American Bankers Association, Financial Services Roundtable and Securities Industry and Financial Markets Association always grouse about rules.
They will always see them as too onerous and claim that they'll have to tighten credit. That will hurt Main Street, they always say. Judging by their hokey scare tactics, you'd think the act of raising capital requirements during an eight-year span was the final blow to capitalism.
But it's not. Basel III is a compromise tilted toward an international banking community that's woefully undercapitalized and vulnerable to breakdowns. Many international banks are only required to hold 2% common equity.
Many, including Deutsche Bank AG /quotes/comstock/13*!db/quotes/nls/db (DB 54.73, -0.61, -1.10%) , are having to shore up balance sheets just to meet the 2013 deadline in which they'll just have to meet the 2.5% threshold of common equity for a buffer -- less than half of the final requirement. Read full story on Basel III agreement.
U.S. banks are hardly affected in the short run, but you wouldn't know it coming from the industry's lobbyists. U.S. banks are already required to have a 4% common equity-to-assets ratio. They meet those 2013 standards already.
Tell that to Steve Bartlett, chief executive and president of the Roundtable. He sounds worried. "?It is imperative that capital requirements do not weaken banks' ability to assist in the economic recovery," he said.
SIFMA's Timothy Ryan warned, "A number of issues must be resolved if these proposals are to support stability without constraining the supply of capital which is essential to support economic growth and job creation."
And then there was the ABA. In a statement, the association tried to front-run the coming capital standards claiming that it would be too hard and too expensive.
"The proposal to implement a counter-cyclical buffer not only would be difficult to implement, but it can also lead to unintended consequences that could possibly impose unwarranted and significant increases in our operations costs," the ABA wrote in a letter to the 27-member Basel Committee.
Global regulators pushed through a historic remake of the world's banking rules which will likely impact everything from mortgages to commercial loans to credit cards. David Reilly discusses. Also, Jennifer Merritt discusses a new Wall Street Journal survey, which reveals recruiters are shifting their attention away from elite private schools to focus instead on state universities.
Gee guys, you want difficult and unwarranted costs? How about $1.2 trillion in taxpayer-funded bailout commitment? God forbid banks should have to expend a little effort and forego some profits to make the banking system a little safer.
Funny how two years on the ABA and Roundtable think people are gullible enough to buy that line. The reality is that banks will tap the equity and bond markets to raise capital -- something they were able to do in the spring of 2009 when the financial crisis was still fresh. Or, they'll have to strip cash out of their earnings.
It's that last part that bothers them, of course. Banks blew out record profits during the last decade without setting anything aside for the credit cycle that was bound to turn. Now, they're being told to do it in a polite and generous fashion.
Will banks quit lending, as these Chicken Littles suggest? Hardly. Banks make money by lending money. They may get a little more choosy, but judging by the mortgage and credit card defaults of the last two or three years, some restraint is overdue.
Besides, banks will use the new Basel requirements to make excuses for charging more for credit.
Ultimately, the problem is that the banking lobby is very good at sounding shrill when confronted with rules. The solution is finding bankers who know how to run sound banks so that global regulators don't have to do it for them.
David Weidner covers Wall Street for MarketWatch.
David Weidner is the Wall Street columnist for MarketWatch. He formerly covered M&A and financial services at The Daily Deal, American Banker and Dow Jones. He writes the Writing on the Wall column which appears Tuesday on MarketWatch and Thursdays on WSJ.com. He also is a regular contributor to the News Hub.
It's filing for bankruptcy in a plan to slash debt and reorganize the business.
10:08 a.m. Today10:08 a.m. Sept. 23, 2010 | Comments: 11
- 2Shy | 11:45 p.m. Sept. 13, 2010
"Boardwalk Empire sucks. HBO overconfidence. Buscemi is miscast. It moves too slowly. But the worst part is bad acting. #boardwalkempire" 8:04 a.m. EDT, Sept. 23, 2010 from davidweidner
"My review of Charles Ferguson's 'Inside Job' and a look at the conflicts of interest in academia http://bit.ly/avN0Ht" 5:51 a.m. EDT, Sept. 23, 2010 from davidweidner
"OK. my hit with Greta VS is tomorrow. As you were." 4:34 p.m. EDT, Sept. 22, 2010 from davidweidner
"Will be talking campaign contributions by bailout babies on Greta Van Susteren tonight at 10:10." 3:38 p.m. EDT, Sept. 22, 2010 from davidweidner
"In a word: Bono RT @moorehn: at the Clinton Global Initiative thing. So many superbly smug NGO types bleating platitudes abt human rights." 3:44 p.m. EDT, Sept. 21, 2010 from davidweidner
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