Johnny\’s report

On the fall out from the banking crisis.

A head of steam is building up for the re-imposition of capital ratio requirements,

Eh? They never went away. They changed, certainly, but banks have indeed been required to have a certain amount of capital to hand. Has our Johnny never heard of Basel I and Basel II?

One comment on “Johnny\’s report

  1. Not only did the requirements never go away, but most banks held capital well in excess of the minimum anyway.

    He clearly doesn’t have a clue. He calls for the repeal of Basel II because it is based on assessed risk, rather than being formalistic, then calls for capital ratios to include off balance sheet risks. Part of the reasoning behind Basel II was to do precisely that, by making banks reflect the reality of their risks.

    The calls for more regulation generally come from people with no understanding of unintended consequences. Part of the reason for the growth of securitisation was Basel I, which made banks hold capital in proportion to their balance sheets and created a big incentive to move loans off balance sheet.

    All that regulation will ever do is make risk congregate in one area.

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