[Vision2020] A feast For Whores

[Art Deco]

  [image: The New York Times] <http://www.nytimes.com/>

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January 9, 2013
A Step Backward in Bank Regulations

A committee of central bankers and regulators from more than two dozen
countries, including the United States, has disappointingly given in to
lobbying by big banks and watered down important
rules<http://www.nytimes.com/2013/01/07/business/global/07iht-banks07.html>meant
to strengthen the global financial system. The
change<http://dealbook.nytimes.com/2013/01/07/easing-of-rules-for-banks-acknowledges-reality/>will
let banks include risky financial instruments like corporate bonds and
mortgage-backed securities as part of their liquid asset reserves, which
are meant to cover up to 30 days of cash outflows during crises. And the
banks have until 2019, not 2015, to comply fully with the easier standards.
Each nation will decide when and how to implement the rules.

The committee unanimously rolled back the so-called Basel III rules that
were adopted in 2010 to make them “more realistic,” said Mervyn King, the
governor of the Bank of England. The banks argued that requiring them to
hold most of their liquid reserves as cash and government securities would
restrict their ability to lend to small businesses and consumers because
they would have less money to lend.

The problem is that the new assets defined as liquid are precisely those
that banks found difficult to value and trade in 2008. Relying on them to
provide liquidity during a crisis is a recipe for disaster, said Anat
Admati, a professor of finance and economics at Stanford University.

But the banks want to be allowed to hold more such assets because they are
more profitable than cash or government bonds, like 10-year Treasury notes,
which were yielding just 1.86 percent a year on Wednesday. Big banks also
know that in a crisis they would likely receive emergency loans and capital
from central banks and their governments, so why tie up their reserves with
assets that provide only modest returns?

Coming four years after the failure of Lehman Brothers, the dilution of
liquidity standards suggests that banks are again dictating policy in ways
that will put the world at greater risk of another crisis. Policy makers in
Washington and other capitals need to ask banking regulators to hold the
line on the very limited progress made so far.


-- 
Art Deco (Wayne A. Fox)
art.deco.studios at gmail.com
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