Are identified non-performing loans truly riskier to bank systems than those many still out there waiting to be identified as such?

Sir, Arthur Beesley reports that “ECB’s Single Supervisory Mechanism, a watchdog created in 2014 to oversee eurozone banks, is pressing Irish lenders to achieve a 5 per cent NPL ratio in line with European norms”,“Irish banks step up efforts to shed bad debts” August 22.

Of course it is in general terms good when banks clean up their balance sheets but, I must ask: Why should identified non-performing loans be more risky to a country’s financial stability than those loans that could be about to be identified as such?

“A 5 per cent NPL ratio in line with European norms” That sounds precisely like what deskbound regulators might invent in order to show everyone they’re working hard. How much better would it not be for all if these regulators took some time off in order to take a course on the meaning of conditional probabilities; I mean so that could move away from that simpleton idea of risk weighting the capital requirement for banks based on the risks that are perceived.

“There’s a very healthy demand for loan assets on Irish property,” said Owen Callan, equity analyst at Investec in Dublin…[so] it’s not a bad opportunity to get rid of some of these loans in what is a very strong market.”

Great! But if that was not the case, should Irish banks anyhow have to obey regulators sitting in Fankfurt am Main inventing general rules that should apply to all European banks, independent of their particular realities… like they did when they assigned a 0% risk weight to Greece?

Sir, I would never have voted for Brexit but, each day that goes by and I see how EU authorities do not confront the real EU challenges; like how to handle the absence of a foreign exchange adjustment mechanism lost with the Euro; and instead promote themselves with all type of small issues that are better handled by local authorities, I get the feeling it might have not been such a crazy vote.

@PerKurowski

The worse insults need not to include foul language.

Sir, Peter Cunningham, in “A dark, cruel comedy at the expense of the Irish taxpayer”, June 27, writes “It is in September 2008 and Ireland´s hapless government, faced with an unprecedented flight of capital from the country´s banking system and acting on the facts given to it, has decided to guarantee the obligations of all banks”.

The Tier 1 Capital Ratio of Anglo Irish Bank was reported as 8.3% in 2007 and 8.4% in 2008, and its Total Capital ratio, for the same years, 11.6% and 12% respectively, and they all seem healthy. But that of course is based on risk-weighted assets, and so, if the weights are wrong, these figures don´t say much. Sir, I wonder if the Irish authorities would have acted differently had they known, what used to be known, namely the un-weighted total assets to equity.

But Cunningham also writes “The almost total absence of effective banking regulation would be laughable had it not been so serious” and he´s wrong, because with a total absence of banking regulations, another type of crisis might have happened, but none as big and as systemic as the current.

And now the Basel Committee has decided that a small but not risk weighted leverage ratio shall also be imposed on the banks, but, read this! “Implementation of the leverage ratio requirement has begun with bank-level reporting to supervisors of the leverage ratio and its components from 1 January 2013, and will proceed with public disclosure starting 1 January 2015.”

“with public disclosure starting 1 January 2015.” You see big insults do not necessarily need to be expressed with vulgarities or foul language, they can also come dressed up in very elegant word and formulas.

And talking about cruel insults,  now they announce that “Rules to force losses on creditors in failed banks were agreed by EU finance ministers” Anyone knows of any rules that prevented creditors from suffering losses in failed banks?

The Torturer and the Haircut

Sir, your “Europe must use borrowed time well” April 21, reminds us of how scary it is when we see someone calculating with complex formulas a sustainable debt level of a sovereign; just like a refined torturer calculating the pain tolerance of the tortured, to keep the poor bastard from passing out.

Also, who are the least hard for politicians to order a haircut? The sovereigns, their creditors the banks, the current voting tax payers, or the future generation of voting tax payers? Is it so hard to guess?

As always, the race is between postponement and realities-catching-up. As always, we are looking on with masochistic fascination, praying and biting our nails.

Ireland’s taxpayers?... and what about holding the Basel Committee accountable?

Lorenzo Bini Smaghi argues that since countries like Ireland took decisions aimed at ensuring a more benign environment for their financial sectors, and thereby had representation, “Ireland’s taxpayers must take their share of the pain” April 13.

What on earth is he talking about? This crisis resulted 99 percent because the Basel Committee diluted the basic capital requirements for banks by arbitrarily establishing some minimalistic risk-weights based on the information provided by the credit rating agencies, even though this information had already been cleared for in the market, when setting the risk-premiums. What representation did Ireland and Irish taxpayers have in such a foolish decision of a global rule setting body?

Mr Bini talks also about “accountability” and I just have to ask him where there is any sign of the Basel Committee being held accountable. From what we see, after failing so utterly with Basel II, they are now happily proceeding to dig us even deeper into the ground with Basel III as if nothing happened with their principal regulatory paradigm.

Asking the pusher for help?

Sir, Martin Wolf holds that “Ireland needs help with its debt” February 23. But when looking at the help Ireland currently gets by way of crazy bank regulations one could also ask, what more help can it need?

Ireland’s credit rating was recently downgraded to A- and which means that banks are still allowed to leverage their capital more than 60 to 1 when lending to Ireland, while in comparison they are limited to about 12 to 1 when lending to a small business or an entrepreneur. And, before March 2009 the banks because of Ireland’s AA or better ratings, needed no capital at all when lending to it.

Without doubt what most caused the over-indebtedness that set off the current crisis was the minuscule capital required by the regulators of banks whenever these entered into operations connected with prime credit ratings. That Mr. Wolf can insist in that “the big failure was the behaviour of private lenders and borrowers”, without also referring to the out the “out-of-control” bank regulators who acted as the pushers of debt, is just amazing.

PS. When Ireland gets downgraded to B, then the risk-weight applied will instead of 20% be 50% which means that all banks need to post 2.5 percent in additional capital on all their exposure to Ireland… and that is why Ireland has not been downgraded to B.