December 17, 2010

The Basel Committee seems really to be digging us deeper in the hole.

Sir I would recommend the reading of Basel III: A global regulatory framework for more resilient banks and banking systems published in December 2010.

If after what this crisis should have taught the regulators this is all they can come up with I can only conclude that our current crop of bank regulators are absolutely insane.

The regulations are so convoluted that there is no chance that any normal banker or regulator would really understand them much less be capable of evaluating these… as they are all supposed to do.

Just as an example I would call your attention to the formula in paragraph 99: A that supposedly calculates the capital requirements to cover for counterparty risk. Also that formula, which I admit that I am not yet 100% sure on how it works, references a table of risk-weights that in seven tranches goes from .7% for an AAA rated, through 3% for a B rated and up to a whopping 18% for a C rated counterparty.

I look at it, over and over again and try to understand how this formula would have stopped the banks from dealing excessively with a triple-A rated counterparty like AIG. In fact, though I cannot swear on it, it would seem that the capital requirements would be even lower than in Basel II.

FT, do you have any reporters with the guts of not admitting they understand something before they truly understand it? If you do, please have them ask the Basel Committee some fundamental questions, I mean so that we try our utmost to avoid it digging us deeper in the hole where they already placed us.