Mario Draghi declares the ECB agreement on a thorny set of revisions to Basel 3.

Rose Prince

2017-11-25 06:34:00 Sat ET

Mario Draghi, President of the European Central Bank, heads the international committee of financial supervisors and has declared their landmark agreement on a thorny set of revisions to Basel 3. Many bankers and pundits refer to these revisions as Basel 4. While many banks prefer to standardize their equity capital calculations under Basel 3, several multinational banks apply their own internal risk models to gauge appropriate common equity capital ratios. Now the primary concern relates to the unfortunate outcome that the minimum regulatory capital results would become lower for a given large bank if one chose to apply another bank's internal risk models. This discrepancy might arise from the fact that each bank exhibits different exposure to specific risk types such as commercial real estate default risk and operational risk. Due to this concern, Basel 4 revisions can fill the gap between fact and fiction to help circumvent regulatory arbitrage.

Large banks would need to incorporate loan-to-value ratios into the internal risk models of residential mortgage default risk. On balance, the overall capital floor is 72.5%, which reaches a healthy middle ground between the U.S. preference for 75% and the European tendency toward 70%. Proponents of U.S. financial deregulation suggest that substantially lifting the average capital ratio from 7% to 12%-15% would likely increase the prohibitively high cost of capital for banks, insurance companies, credit unions, and other financial institutions.

 


If any of our AYA Analytica financial health memos (FHM), blog posts, ebooks, newsletters, and notifications etc, or any other form of online content curation, involves potential copyright concerns, please feel free to contact us at service@ayafintech.network so that we can remove relevant content in response to any such request within a reasonable time frame.

Blog+More

Capital structure choices for private firms

James Campbell

2022-09-15 11:38:00 Thursday ET

Capital structure choices for private firms

Capital structure choices for private firms The Kauffman Firm Survey (KFS) database provides comprehensive panel data on 5,000+ American private firms fr

+See More

Trumpism may now become the new populist world order of economic governance.

Monica McNeil

2018-07-30 11:36:00 Monday ET

Trumpism may now become the new populist world order of economic governance.

Trumpism may now become the new populist world order of economic governance. Populist support contributes to Trump's 2016 presidential election victory

+See More

The new antitrust enforcement paradigm

Joseph Corr

2023-10-14 10:32:00 Saturday ET

The new antitrust enforcement paradigm

Jonathan Baker frames the current debate over antitrust merger review and enforcement in America. Jonathan Baker (2019)   The antitrust paradi

+See More

Tony Robbins suggests that one has to be able to make money during sleep hours in order to reach financial freedom.

Laura Hermes

2019-04-27 16:41:00 Saturday ET

Tony Robbins suggests that one has to be able to make money during sleep hours in order to reach financial freedom.

Tony Robbins suggests that one has to be able to make money during sleep hours in order to reach financial freedom. Most of our jobs and life experiences tr

+See More

U.S. inflation has become sustainably less than the 2% policy target in recent years.

Jonah Whanau

2019-08-03 09:28:00 Saturday ET

U.S. inflation has become sustainably less than the 2% policy target in recent years.

U.S. inflation has become sustainably less than the 2% policy target in recent years. As Harvard macro economist Robert Barro indicates, U.S. inflation has

+See More

Macro economic innovations and asset alphas show significant mutual causation.

Olivia London

2023-12-03 11:33:00 Sunday ET

Macro economic innovations and asset alphas show significant mutual causation.

Macro innovations and asset alphas show significant mutual causation. April 2023   This brief article draws from the recent research publicati

+See More