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

Lean enterprises often try to incubate disruptive innovations with iterative continuous improvements and inventions over time.

Joseph Corr

2020-06-03 09:31:00 Wednesday ET

Lean enterprises often try to incubate disruptive innovations with iterative continuous improvements and inventions over time.

Lean enterprises often try to incubate disruptive innovations with iterative continuous improvements and inventions over time. Trevor Owens and Obie Fern

+See More

The U.S. stock market delivers a hefty long-term average return of 11% per annum.

Peter Prince

2017-03-09 05:32:00 Thursday ET

The U.S. stock market delivers a hefty long-term average return of 11% per annum.

From 1927 to 2017, the U.S. stock market has delivered a hefty average return of about 11% per annum. The U.S. average stock market return is high in stark

+See More

Yale macro economist Stephen Roach draws 3 major conclusions with respect to the Chinese long-run view of the current tech trade conflict with America.

Joseph Corr

2019-09-05 09:26:00 Thursday ET

Yale macro economist Stephen Roach draws 3 major conclusions with respect to the Chinese long-run view of the current tech trade conflict with America.

Yale macro economist Stephen Roach draws 3 major conclusions with respect to the Chinese long-run view of the current tech trade conflict with America. Firs

+See More

Neoliberal public choice continues to spin national taxation and several other forms of government intervention.

Peter Prince

2019-01-07 18:42:00 Monday ET

Neoliberal public choice continues to spin national taxation and several other forms of government intervention.

Neoliberal public choice continues to spin national taxation and several other forms of government intervention. The key post-crisis consensus focuses on go

+See More

President Trump tweets that Apple can avoid tariff consequences by shifting its primary supply chain from China to America.

Olivia London

2018-09-11 18:36:00 Tuesday ET

President Trump tweets that Apple can avoid tariff consequences by shifting its primary supply chain from China to America.

President Trump tweets that Apple can avoid tariff consequences by shifting its primary supply chain from China to America. These Trump tariffs on another $

+See More

Facebook faces a major data breach by Cambridge Analytica that has harvested information from 50 million Facebook users.

Amy Hamilton

2018-03-17 09:35:00 Saturday ET

Facebook faces a major data breach by Cambridge Analytica that has harvested information from 50 million Facebook users.

Facebook faces a major data breach by Cambridge Analytica that has harvested private information from more than 50 million Facebook users. In a Facebook pos

+See More