November 03, 2010

Are the banks now to set their own capital requirements?

Sir on October 27, 2010, the Financial Stability Board FSB issued “Principles for Reducing Reliance on CRA Ratings” and by which they endorse a substantial part of the criticisms against current bank regulations and that I have been writing about in hundreds of letters to the Financial Times over the last years and which, for whatever reasons, since 2005, you decided you were better off ignoring.

In fact what FSB states is that the Basel Committee needs to go back to square one and start their regulatory process all over again, since most of what it has on the table is absolutely worthless. It will be interesting to see what the G20 ministers and others will interpret about what they are now supposed to do with Basel III.

What is not yet clear from the FSB statement is how the capital requirements of banks are now to be calculated, because even though it speaks over and over again that “banks should be expected to make their own credit assessments” and “should ensure that they have sufficient resources to manage the credit risk that they are exposed to”, we must assume they do not really mean that banks will from now on set their own capital requirements… if so… that would indeed be real, pure and unbridled de-regulation.