Let us pray that immediate financial adjustment is not too expensive
Sir Gillian Tett analysis some linkages between the bank crisis in Japan and the current difficulties encountered by the western financial system in a great article “Financial faith found wanting” January 2. Of course the title is a little bit insulting since what has been really been found wanting is the financial knowledge that was supposed to correspond all the investor’s faith deposited.
But what I really would like to comment on is that there is a very substantial difference between the management of the both crisis and we really do not know how this will plays out. Tett quotes Tadashi Nakamae with “Japan’s… banker’s stubborn refusal to recognise bad debts and authorities´secretive attitude amplifies the problem in the long run” and this is although true might also be a very low price for buying the necessary time to work it all out in a more orderly way. The current system with its minimum capital requirement rules bindingly agreed upon in the Basel Accord and the mark to market accounting rules; and that forces upon the banks rapid adjustments with no delays allowed might indeed result in less rain, in the long term, but could lead to a monsoon that though brief could destroy much more value. We will just have to see… and pray.
Finally let me also acknowledge the fact that at least one former regulator, Mr Timothy Ryan is starting to recognize their responsibilities in this whole mess saying “Former US bank regulators like me feel a bit responsible because we used risk-adjusted capital rules to put riskier assets of balance.” As I said, it is but a start. The part of appointing the credit rating agencies as the financial watchdogs of the world is still pending.
But what I really would like to comment on is that there is a very substantial difference between the management of the both crisis and we really do not know how this will plays out. Tett quotes Tadashi Nakamae with “Japan’s… banker’s stubborn refusal to recognise bad debts and authorities´secretive attitude amplifies the problem in the long run” and this is although true might also be a very low price for buying the necessary time to work it all out in a more orderly way. The current system with its minimum capital requirement rules bindingly agreed upon in the Basel Accord and the mark to market accounting rules; and that forces upon the banks rapid adjustments with no delays allowed might indeed result in less rain, in the long term, but could lead to a monsoon that though brief could destroy much more value. We will just have to see… and pray.
Finally let me also acknowledge the fact that at least one former regulator, Mr Timothy Ryan is starting to recognize their responsibilities in this whole mess saying “Former US bank regulators like me feel a bit responsible because we used risk-adjusted capital rules to put riskier assets of balance.” As I said, it is but a start. The part of appointing the credit rating agencies as the financial watchdogs of the world is still pending.
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