Bland Unsight Posted June 19, 2016 Author Share Posted June 19, 2016 (edited) I see you're new to the ways of The City .... Yeah, but I'm learning, and it's not exactly complicated Still pretty amused that the source for a story on BCBS risk-weights appears to have significant @rse-elbow differentiation issues with regard to even the most elementary aspects of bank regulation. Edited June 19, 2016 by Ghost Bird Quote Link to comment Share on other sites More sharing options...
spyguy Posted June 19, 2016 Share Posted June 19, 2016 This blokes good and worth a read: http://philipaugar.com/ I used to think that banks and fiannce knew what they were doing and earned the money. I read a fe of earlier books - just before Barings - and it was obviousthat banks + fin are just chancing it and paying themselves hamsomely. Im eating popcorn and watching the fall out from Chemring and Poundland at the mo. Quote Link to comment Share on other sites More sharing options...
Venger Posted June 20, 2016 Share Posted June 20, 2016 When hunting the Snark that turned out to be Charlie "Reserve confusion" Curran I happened on this: On Basel they had this to say UK Mortgages Free from Basel, the mortgage market would be free to grow solely under UK regulation. There was a point raised from the audience about the disadvantages of the strengthening of the pound against the euro and US dollar, though this was also regarded by the panel as being purely a short term issue. As in other sectors, the experts concluded that a long term view on Brexit is nigh on impossible, and as such the discussion moved swiftly on. The interesting thing is that this is just total horseshit. The Basel III rules are nothing to do with Europe (and thus nothing to do with Brexit whatsoever). If the UK left the EU that would have no bearing on whether or not our regulators remained involved in the work of the BCBS and how they implemented the finalised BCBS rules on risk-weights and capital floors. I find it very difficult to believe that all of the "experts" weren't aware of this, though the separate existence of the EU Mortgage Credit Directive has made it very easy to get mug punters confused about what comes from Brussels and what comes from Basel. The Instinctif Great Housing Market Debate, 2016; Buy-To-Let Just the other day, in discussion outside of hpc (in email) even I recognised it as global. View of those experts makes it sound that Basel comes undone if a Brexit lol. Ok I put European in there too - simply to show highlight how affects wider Europe, but also Global. Email: I guess they could point to BASEL II/III being European/Global measures. ..my suggestion being that politicians of HPI mind might not be able to swerve around BASEL in future, and the implied tightening of lending. Global rules that have been formulated for a more robust banking sector. Basel III is the third in a series of accords by the Basel Committee on Banking Supervision, which is a forum for members of the worldwide banking community to discuss ways they can cooperate on banking supervisory matters. The purpose of the accords is to improve the worldwide bank regulatory framework. http://www.investopedia.com/video/play/basel-iii/ Quote Link to comment Share on other sites More sharing options...
Blod Posted June 20, 2016 Share Posted June 20, 2016 (edited) Their whole attitude seems predicated on sounding good for their in house audience. Years ago a trader/dealer I knew used the phrase, better to look good than be good. The moral being hiding, lying, and insider trading is all okay so long as you don't get pulled up. There is no way a place holder spokesman would be chosen if they actually knew their subject/topic they just wouldn't have been able to swim against the fraud. As long as the plates keep spinning their thieving goes unchecked. Politicians are rewarded/lobbied to ensure their status quo is not obstructive. Edited June 20, 2016 by Blod Quote Link to comment Share on other sites More sharing options...
Bland Unsight Posted June 23, 2016 Author Share Posted June 23, 2016 Game on. It’s the day before D-Day for Europe’s bank lobby. European banks are about to launch a last-ditch campaign to prevent regulatory changes that they believe will make them permanent also-rans to American competitors. Their strategy? Enlist sympathetic European politicians to push back against U.S.-dominated global rule-making bodies. After failing to persuade international financial regulators to soften tough new rules that will hamstring their lending and trading operations, the European banking industry will unleash a full-frontal lobbying assault on the corridors of power in Brussels, Frankfurt, London, and Paris in the next few months. Source: European bankers to politicians: Save us from the Americans, Politico, 21 June 2016 One of the interesting things for our purposes is that the big banks likely to be throwing their weight around (no pun intended) regarding revisions to the Standardised Approach have many other entirely separate fish to fry here and so should their lobbying get them anywhere that may still be of very little consequence to buy-to-let (as that is likely to be a very low priority). Quote Link to comment Share on other sites More sharing options...
spyguy Posted June 23, 2016 Share Posted June 23, 2016 Im not up to speed on US regulation. The US is putting the boot into the banks. Hardly surprising really. Quote Link to comment Share on other sites More sharing options...
Bland Unsight Posted June 23, 2016 Author Share Posted June 23, 2016 Im not up to speed on US regulation. The US is putting the boot into the banks. Hardly surprising really. I don't think it's structured that way. It's not like there are separate US regulators. There's just the BCBS. It may now suit European banks to label it as US dominated, but that doesn't make it so. Crucially as the implementation of the rules is done by the national regulator (for us the Bank of England, obviously) the lobbying is not going to be effective unless it moves Bank of England policy. I don't see anything concrete to support the notion that the Bank of England's assault on BTL (which has barely begun) is about to end, hence the banks aren't going to have much luck lobbying the Bank of England. They are not going to have much luck with Osborne (who keeps stabbing them in the face with tax changes, keep it up George!) hence they are out of options. The big UK lenders whose lobbying is worth taking seriously have already walked away from BTL to limited companies and we can take that as indicative of their appetite to squander political capital trying to save Busta and pals from higher mortgage rates. Actually, the big lenders may well be keen for higher risk-weights to choke the life out of those 'challenger banks' that bet big on BTL, leaving the big lenders to continue to clear up in the prime owner-occupier lending market without any undue increase in competition. Quote Link to comment Share on other sites More sharing options...
spyguy Posted June 23, 2016 Share Posted June 23, 2016 I think ome countries are layering on capital,ontop of Basel3. As far as I can tell US regulator have decided they want much smaller, simpler banks. Quote Link to comment Share on other sites More sharing options...
Bland Unsight Posted June 23, 2016 Author Share Posted June 23, 2016 As far as I can tell US regulator have decided they want much smaller, simpler banks. Amen to that! Quote Link to comment Share on other sites More sharing options...
Bland Unsight Posted September 24, 2016 Author Share Posted September 24, 2016 (edited) How many more of the same posts do we need to contribute to their echo chamber from CountOfNowhere and Bland Unsight promoting their great genius in spotting overpriced houses/BTL issues that none of us mere mortals have noticed? TL;DR version: BoE loan level data collection may have repercussions for RWAs as it may force some lenders to re-classify consent-to-let as BTL for the purposes of regulatory capital calculations. I thought I'd just drop in on the risk-weight thread to see if the Great Sage of HPC, Ghostly, had already posted about something that occurred to me the other day. They haven't, so I will. As everyone, including, of course, Ghostly, knows we are expecting Q4 2016 to conclude with final rules on BCBS risk-weights, which are expected to have repercussions for the amount of regulatory capital that will need to be held against BTL lending. Everyone, including Ghostly for certain, is also aware how this has the potential to affect the pricing of BTL loans (i.e. the interest-rate charge - apologies to Ghostly for pointing out the obvious). Now until last summer (and an exchange on the twitters with Neal Hudson) I'd overlooked consent-to-let, assuming that it is immaterial relative to buy-to-let lending. Again, apologies to Ghostly for pointing out the obvious! However Hudson has offered an educated guess that would suggest that for every £2 of straight-no-chaser BTL there is about £1 of consent-to-let BTL. Further, and of course apologies once again to Ghostly, who is for sure all over all of this like a rash, as previously discussed the recent Bank of England consultation of loan level data on BTL lending explicitly mentions disclosing consent-to-let lending as BTL lending. Now, and apologies to Ghostly for labouring a point which I'm sure occurred to him/her/preferred-alternative-gender-identity (do ghost have 'bits'? does their ghost junk inform their gender identity?) immediately, but the regulatory capital charge is driven by the 'bin' that the lender puts the lending into. Hence if consent-to-let mortgages are still being treated as loans to owner-occupiers for the purposes of calculating risk-weighted assets then one implicit message in the BoE consultation is that banks will need to include consent-to-let in their buy-to-let bin and not their owner-occupier bin when calculating RWAs. As Ghostly will recall (but you'll forgive me for reminding others) I did some back of the envelope calculations for some of the worse affected lenders which suggested that they would be capital constrained under the present draft BCBS rules. In those calculations I overlooked (due to my ignorance, oh to have Ghostly's knowledge) the possibility that there was lots of consent-to-let in the owner-occupier lending and that the Bank of England would be able to make the lenders acknowledge that it was really buy-to-let and set aside regulatory capital accordingly. Anyway, apologies once again to Ghostly. It would of course help if you'd share a little more of your insight (though I recognise that you have a great deal on your plate re-reporting conversations that you overheard on the bus). Edited September 24, 2016 by Bland Unsight Quote Link to comment Share on other sites More sharing options...
Bland Unsight Posted October 3, 2016 Author Share Posted October 3, 2016 Interesting developments in central banking land, with considerable relevance here. EU Calls for Sweeping Changes to Basel Bank-Capital Proposal, Bloomberg, 29 September 2016 My thanks to @mark_the_burly on the twitters for bringing the matter to my attention. I think this is a bit more ambiguous in the UK than it might appear at first glance; the whole question of how Basel 3 will be implemented in the UK affected by our decision to leave the EU, and that is a matter that wasn't clearly on the radar when this thread was started. Quote Link to comment Share on other sites More sharing options...
Sancho Panza Posted October 5, 2016 Share Posted October 5, 2016 On 03/10/2016 at 9:06 PM, Bland Unsight said: Interesting developments in central banking land, with considerable relevance here. EU Calls for Sweeping Changes to Basel Bank-Capital Proposal, Bloomberg, 29 September 2016 My thanks to @mark_the_burly on the twitters for bringing the matter to my attention. I think this is a bit more ambiguous in the UK than it might appear at first glance; the whole question of how Basel 3 will be implemented in the UK affected by our decision to leave the EU, and that is a matter that wasn't clearly on the radar when this thread was started. From the link,more pleading for lax regulation as it worked so well in 2008 'That promise, first made in January, left open the possibility that individual countries or banks could face a marked increase. European banks including HSBC Holdings Plc, Deutsche Bank AG, Societe General SA and Credit Agricole SA have led the global lobbying campaign against the proposals, writing letters to regulators, giving speeches and warning about the impact of the rules on earnings calls all year. ' Quote Link to comment Share on other sites More sharing options...
Bland Unsight Posted October 30, 2016 Author Share Posted October 30, 2016 (edited) This is fun, from the new PRA chief, Sam Woods at the Mansion House City Banquet, given on 26 October 2016. Quote In a similar vein, let me say a quick word on the reforms currently being discussed in Basel – specifically the review of the use of firms’ own internal models for calculating risk-weighted assets and therefore their capital requirements. The Governors and Heads of Supervision were very clear at the beginning of this year that their focus was on reducing unwarranted variability in risk weights, but there should not be a significant increase in global capital requirements. I am optimistic that these variability problems in risk weights can be mitigated without any such thing as a Basel IV. This discussion in Basel has been and remains controversial, not least because, by definition, the BCBS cannot level the playing field without changing capital requirements for some firms – and for firms that are outliers, these increases could be significant. But one very important part of the package has attracted less attention. I have long been troubled, as I know have members of the Treasury Committee, by the gap in risk-weights for low-LTV mortgages between firms who use models to calculate them and (typically smaller) firms who use a standardised, and therefore relatively crude, weighting provided by regulators. Now of course the leverage ratio is an essential complement to the risk-weighted framework which mitigates the effect of such disparities. Nevertheless they still bother me both in light of our secondary competition objective, given the risk of an un-level playing field, but importantly also in light of our safety and soundness objective because of the economic incentive it provides for standardised firms to concentrate on higher-LTV lending. We have therefore argued in Basel for a significant lowering of the standardised risk-weight for low-LTV mortgages which I hope we will be able to secure. At the same time, I intend that we will bring forward proposals under our Pillar 2 regime which should also reduce the risk that our capital standards are overly prudent for smaller firms using the standardised approach to credit risk to calculate their requirements – essentially by looking at capital requirements in the round rather than assuming that a simple “sum of the parts” approach will necessarily deliver the right answer. Full speech here. (Emphasis added.) The consistent message from the Bank of England has been that implementation of Basel risk-weights will not lead to a need for further capital for the banking system overall. A plain reading of the draft rules leads to the conclusion that the capital requirements associated with buy-to-let lending are going up (and this is the accepted narrative in the industry press, for example this reporting of Reuters reporting the Woods speech (which I guess I am thus 'reporting' fourth-hand): Quote Basel proposals intend to force banks to hold higher capital for what is deemed as riskier lending, which is expected to damage lending to first-time buyers and deal a further blow to the buy-to-let market. Source: EU banks to get more time to implement Basel capital rules, Mortgage Strategy, 27 October 2016 Hence, reading between the lines on the Woods speech we are still at the same place with the risk-weights There will be a significant increase on the capital requirements associated with BTL loans, particularly for lenders currently assigning very low risk-weights to their BTL book using an Advanced Internal Ratings Based approach (A-IRB), (e.g. Nationwide). For the banking sector as a whole this increased capital requirement will likely be partly off-set by lower Standardised Approach risk-weights on prime owner-occupier lending, particularly at low-LTVs. This will make the challenger banks more competitive in the prime owner-occupier market It is expected to be a big deal for lenders who've piled into BTL to a bonkers extent (e.g. The Coventry, Kent Reliance etc) Edited October 30, 2016 by Bland Unsight Quote Link to comment Share on other sites More sharing options...
eek Posted October 30, 2016 Share Posted October 30, 2016 (edited) Well it may make the challenger banks more competitive in the prime owner-occupier market if they haven't gone OTT in the BTL market due to underestimating the long-term risk-weights. Edited October 30, 2016 by eek Quote Link to comment Share on other sites More sharing options...
Toast Posted October 30, 2016 Share Posted October 30, 2016 1 hour ago, Bland Unsight said: It is expected to be a big deal for lenders who've piled into BTL to a bonkers extent (e.g. The Coventry, Kent Reliance etc) So, what will be the behaviour of small lenders which find themselves (or believe they will find themselves) in breach of capital requirements? A share issue is one way to raise capital, but what other options do they have? More particularly, how will they treat their "problematic" borrowers? Clearly, they will want them to re-mortgage elsewhere at end of term, but will they automatically have to foreclose if the borrower struggles to find new credit? Is it possible that the lenders may be forced to demand early repayment? Quote Link to comment Share on other sites More sharing options...
spyguy Posted October 30, 2016 Share Posted October 30, 2016 2 hours ago, Bland Unsight said: This is fun, from the new PRA chief, Sam Woods at the Mansion House City Banquet, given on 26 October 2016. Full speech here. (Emphasis added.) The consistent message from the Bank of England has been that implementation of Basel risk-weights will not lead to a need for further capital for the banking system overall. A plain reading of the draft rules leads to the conclusion that the capital requirements associated with buy-to-let lending are going up (and this is the accepted narrative in the industry press, for example this reporting of Reuters reporting the Woods speech (which I guess I am thus 'reporting' fourth-hand): Source: EU banks to get more time to implement Basel capital rules, Mortgage Strategy, 27 October 2016 Hence, reading between the lines on the Woods speech we are still at the same place with the risk-weights There will be a significant increase on the capital requirements associated with BTL loans, particularly for lenders currently assigning very low risk-weights to their BTL book using an Advanced Internal Ratings Based approach (A-IRB), (e.g. Nationwide). For the banking sector as a whole this increased capital requirement will likely be partly off-set by lower Standardised Approach risk-weights on prime owner-occupier lending, particularly at low-LTVs. This will make the challenger banks more competitive in the prime owner-occupier market It is expected to be a big deal for lenders who've piled into BTL to a bonkers extent (e.g. The Coventry, Kent Reliance etc) You know, if only someone invented a number that could be used to identify your earnings. And maybe assign a number to the mortgage. And if there was a magic machine that could start at 0 and work through the numbers, matching mortgage owed, to income earned on a yearly base. Quote Link to comment Share on other sites More sharing options...
Tapori Posted October 30, 2016 Share Posted October 30, 2016 On 6/19/2016 at 3:19 PM, Bland Unsight said: I guess it's not about learning is it? It's about getting a seat next to the river of new credit money spilling out of the banking sector and scooping out great fistfuls of it any which way you can. It's the economically-literate way i hear. Quote Link to comment Share on other sites More sharing options...
Noallegiance Posted November 14, 2016 Share Posted November 14, 2016 http://www.bloomberg.com/news/articles/2016-11-14/trump-s-rise-may-save-banks-billions-by-disrupting-global-rules Quote Link to comment Share on other sites More sharing options...
spyguy Posted November 14, 2016 Share Posted November 14, 2016 3 minutes ago, Noallegiance said: http://www.bloomberg.com/news/articles/2016-11-14/trump-s-rise-may-save-banks-billions-by-disrupting-global-rules I guess Trump, personally , would like banks to lend loads to people like him. However, his angry, non-elite electoral base are very anti banks + finance. And rightly so. Finance in the US is a much smaller part of the economy than the UK - relative to population the UK banks are 4 times bigger - or dangerous as we have recently found out. Quote Link to comment Share on other sites More sharing options...
Bland Unsight Posted January 8, 2017 Author Share Posted January 8, 2017 Global Bank Capital-Rule Revamp Postponed as Europe Digs In, Bloomberg, 3 January 2017 Quote Global bank regulators pushed back a final decision on new capital standards as they struggle to reach an agreement in the face of strident European opposition. The oversight board of the Basel Committee on Banking Supervision said on Tuesday that it had postponed a meeting scheduled for Jan. 8 to allow for more debate on standards meant to prevent banks from gaming capital rules. Top European Union policy makers have campaigned against a major element of the reform package, a so-called capital floor, arguing that it would unfairly punish the bloc’s banks and harm its economy. More at the link. Quote Link to comment Share on other sites More sharing options...
spyguy Posted January 8, 2017 Share Posted January 8, 2017 4 hours ago, Bland Unsight said: Global Bank Capital-Rule Revamp Postponed as Europe Digs In, Bloomberg, 3 January 2017 More at the link. German banks. Quote Link to comment Share on other sites More sharing options...
Bland Unsight Posted January 8, 2017 Author Share Posted January 8, 2017 22 minutes ago, spyguy said: German banks. Yup. If the Bank of England press UK lenders to used the Standardised Approach for BTL (and don't let them use A-IRB methods) then the final outcome over the fight over "capital floors", which is is apparently holding things up, may have very little effect how Basel III implementation impacts UK BTL. Hopefully they'll be something concrete by end of March. No reason yet to suppose that this is dead and that UK BTL is going to dodge a bullet. Quote Link to comment Share on other sites More sharing options...
spyguy Posted January 8, 2017 Share Posted January 8, 2017 15 minutes ago, Bland Unsight said: Yup. If the Bank of England press UK lenders to used the Standardised Approach for BTL (and don't let them use A-IRB methods) then the final outcome over the fight over "capital floors", which is is apparently holding things up, may have very little effect how Basel III implementation impacts UK BTL. Hopefully they'll be something concrete by end of March. No reason yet to suppose that this is dead and that UK BTL is going to dodge a bullet. IO BTL is dead. BTL wil be classified as commercial lending. There have been so many commercial drbt drfaukts that the risk weeighting will be paknful. Quote Link to comment Share on other sites More sharing options...
Gemma Rose Posted January 9, 2017 Share Posted January 9, 2017 Obviously I don't like or necessarily agree with the writers viewpoint but an interesting read nevertheless. http://www.globalcapital.com/article/b113z2tpdnxlpn/the-beginning-of-the-end-for-basel Quote Link to comment Share on other sites More sharing options...
spyguy Posted January 9, 2017 Share Posted January 9, 2017 9 minutes ago, Gemma Rose said: Obviously I don't like or necessarily agree with the writers viewpoint but an interesting read nevertheless. http://www.globalcapital.com/article/b113z2tpdnxlpn/the-beginning-of-the-end-for-basel Not sure. Basel3 is a big grab bag designed to reduce the size of banks and curtail their ability to game capital and risk. Most of Basel3 is coming in. The UK BTL esp IO BTL IO is toast - or rather very very expensive. Quote Link to comment Share on other sites More sharing options...
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