Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Swiss Finish Sets New Standard for Global Bank Regulation

Politics / Market Regulation Oct 13, 2010 - 10:19 AM GMT

By: Global_Intel_Report

Politics

Best Financial Markets Analysis ArticleINCIDENT: The traditional Swiss finishing school taught young women etiquette and social graces, but international bank regulators are talking about something much tougher when they refer to a "Swiss finish" for global banks.

Just how tough became clear last week, 4 October, when a Swiss commission proposed that its two giant banks, UBS and Credit Suisse, be subjected to capital requirements of up to 19%, nearly three times as tough as the 7% capital-to-assets ratio recently suggested by the Basel Banking Committee as a minimum global standard.


SIGNIFICANCE: The ambitious Swiss plan, designed to solve the "too big to fail" problem, will set the standard for megabank regulation as Group of 20 heads prepare for their summit in November. It almost certainly means that other big global banks such as JP Morgan Chase and Deutsche Bank will face capital surcharges from their national regulators.

Swiss National Bank President Philipp Hildebrand left no doubt in an op-ed last week that the Financial Stability Board, mandated by the G-20 to ready proposals on financial regulation, would push for the higher standards for big banks.

"Two years after the demise of Lehman Brothers, the 'too big to fail' problem remains unresolved," Hildebrand wrote in the Financial Times. "The Financial Stability Board (FSB) and its members are committed to proposing measures to the Group of 20 leaders to address the problem."

ANALYSIS: The FSB, as well as the Basel Committee itself, are international groupings loosely affiliated with the Bank for International Settlements in Basel, Switzerland. The FSB gained new legitimacy when the first G-20 summit in 2008 expanded its representation and called on it to make regulatory proposals for the G-20 leaders.

Resistance a Foregone Conclusion: The push for higher capital requirements will meet considerable resistance, especially from German banks, which have traditionally been undercapitalized. But US and UK banks will also object because capital is costly and so a drag on profitability.

There were some initial skirmishes at the IMF/World Bank meetings in Washington over the weekend. The Institute of International Finance, which groups some 400 of the world's largest banks, warned against "overreaction" by national regulators seeking to "gold-plate" capital requirements.

Global Standard Obstacles: One obstacle to getting a global standard is that bank regulations are set by national authorities. While the G-20 is attempting to establish some peer review to create pressure for individual members to follow through on joint resolutions, each country must implement the rules individually.

The second problem with the "Swiss finish" in particular is that it relies on a financing vehicle, which, like clean coal technology, has great appeal as a solution to an urgent problem but has never really been tested in practice.

The Swiss requirements rely on contractual contingent convertible bonds, referred to as CoCos, to fulfill up to 9% of the proposed capital requirements, with the other 10% in the form of common equity. CoCos are bonds that would automatically convert to equity if the bank's capital ratio sank below a certain level.

These convertible bonds would have to have a higher yield to compensate investors for the risk that they would automatically convert to equity, but even so the market for these securities remains largely untested. In the Swiss proposal, some of the bonds would have the trigger point set rather high, increasing the risk that they would be converted to equity at some point, while another segment, designed as a buffer for truly stressful times, would have a lower trigger point.

In his op-ed, Hildebrand warns that without these supplemental measures for the biggest banks, national authorities will face the same dilemma when the next financial crisis strikes - either to accept the financial turmoil from a collapse like that of Lehman Brothers or to once again inject taxpayer money into the banks as with the highly unpopular bank bailouts last year.

The "too big to fail" issue is particularly acute for Switzerland, because the balance sheet of the two big Swiss banks is several times bigger than the tiny country's GDP. But the Swiss have traditionally maintained a strong capital base to increase their competitiveness in the international market place.

BOTTOM LINE: The Swiss measures, which were agreed to by the two big banks, will create market pressure for other big banks, irrespective of whether their national regulators adopt similarly tough requirements.

Hildebrand's tough stand on the capital requirements marks the emergence of a relatively young central banker. A former swimmer who just missed the cut for the 1984 Olympics, the 47-year-old Hildebrand took over the top spot at the Swiss central bank at the beginning of this year.

His leadership on this issue could position him as a possible successor to the current FSB chairman, Bank of Italy governor Mario Draghi, if Draghi, for instance, were to be selected as president of the European Central Bank next year.

Source: http://www.globalintelligencereport.com/categories/Professional-Level-1

Analysis by Global Intelligence Report staff

The global Intelligence Report is a Private news & Intelligence service for sophisticated news consumers, investors and energy market participants. Our breaking stories are often ahead of the mainstream media and our reports do a lot more than just deliver the news. To find out more please visit: www.GlobalintelligenceReport.com

© 2010 Copyright Global Intelligence Report - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in