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Timm

Is Q E The First Step In Reducing Bank Exposure?

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I've had a couple of interesting conversations recently where the idea has been suggested that QE is covering bank losses, and that the way out is not to withdraw the QE cash, but to increase the amount of capital that banks have to hold against risky assets. Reading this piece from the Times , I noticed the last sentence. Is this the first indication that capital adequacy requirements will be tightened to deal with the expansion in base money?

[snips major part]

Hector Sants, the FSA’s chief executive, has accused ministers of “passing the buck†on pay policy, warning it does not have the remit to go further. The Sunday Times has learnt Sants privately warned banks there would be no let-up in scrutiny of their bonus systems. He is said to have been stung by last week’s criticism, and rang the big banking groups to demand to see worker contracts that guarantee bonuses.

The move, two months earlier than planned, could force bankers to tear up contracts the FSA thinks encourage excessive risk taking. The alternative is to make them pile extra capital on their balance sheets to compensate for the risk.

[article ends]

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