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

Thomas Sowell argues that some economic reforms inadvertently exacerbate economic disparities.

Daisy Harvey

2023-11-14 08:24:00 Tuesday ET

Thomas Sowell argues that some economic reforms inadvertently exacerbate economic disparities.

Thomas Sowell argues that some economic reforms inadvertently exacerbate economic disparities. Thomas Sowell (2019)   Discrimination and econo

+See More

Zillow share price plunges 20% year-to-date as Redfin and Trulia also experience an economic slowdown in the real estate market.

Daisy Harvey

2018-11-17 09:33:00 Saturday ET

Zillow share price plunges 20% year-to-date as Redfin and Trulia also experience an economic slowdown in the real estate market.

Zillow share price plunges 20% year-to-date as its competitors Redfin and Trulia also experience an economic slowdown in the real estate market. The real es

+See More

AT&T wins court approval to take over Time Warner with a trademark $85 billion bid despite the Trump prior dissent due to antitrust concerns.

Chanel Holden

2018-06-07 10:36:00 Thursday ET

AT&T wins court approval to take over Time Warner with a trademark $85 billion bid despite the Trump prior dissent due to antitrust concerns.

AT&T wins court approval to take over Time Warner with a trademark $85 billion bid despite the Trump administration prior dissent due to antitrust conce

+See More

U.S. automobile and real estate sales decline despite higher consumer confidence and low unemployment as of October 2018.

Fiona Sydney

2018-10-27 09:34:00 Saturday ET

U.S. automobile and real estate sales decline despite higher consumer confidence and low unemployment as of October 2018.

U.S. automobile and real estate sales decline despite higher consumer confidence and low unemployment as of October 2018. This slowdown arises from the curr

+See More

Bill Gates and Warren Buffett shared their best business decisions in a 1998 panel discussion.

Laura Hermes

2017-11-13 07:42:00 Monday ET

Bill Gates and Warren Buffett shared their best business decisions in a 1998 panel discussion.

Top 2 wealthiest men Bill Gates and Warren Buffett shared their best business decisions in a 1998 panel discussion with students at the University of Washin

+See More

Dr Chip Espinoza recommends 9 new core competences for better managing millennials in the modern workplace.

Rose Prince

2025-08-02 13:31:00 Saturday ET

Dr Chip Espinoza recommends 9 new core competences for better managing millennials in the modern workplace.

Chip Espinoza, Mick Ukleja, and Craig Rusch shine fresh light on the core competences for managing millennials as part of the new modern workforce in recent

+See More