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'too Big To Fail' Bank Rules Unveiled

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clever rule that one...fracking genius....these guys deserve their huge salaries...we are lucky that we have them...God himself has gifted their talent to us to save us all.

And the rule is...to prevent bail outs and failures in the future......its almost to complicated to explain...but I will try..

Here goes.....

ready....

Its...Its...Too Big to Fail Banks must have enough money on hand to pay out when required.

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http://www.bbc.co.uk/news/business-29982181

Interesting read. Does anyone know how much do the banks have to currently hold for their assets?

http://www.bis.org/publ/bcbs270.pdf

BIS lays out 3% leverage ratio for non risk weighted.

http://en.wikipedia.org/wiki/Tier_1_capital

Tier 1 is 4% iirc. Tier 2 8%

http://en.wikipedia.org/wiki/Fractional-reserve_banking

Good expalnation of it all here

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http://www.bbc.co.uk/news/business-29982181

Interesting read. Does anyone know how much do the banks have to currently hold for their assets?

Worth remembering that Northern Rock had a tier one of 8% when it sank.

When you read the BIS blurb and get to the derivatives bit,hope is clearly a strategy for regulators.

Quite why they allow retail banks to trade/hold derivatives I just don't know.

Edited by Sancho Panza

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http://www.bis.org/publ/bcbs270.pdf

BIS lays out 3% leverage ratio for non risk weighted.

http://en.wikipedia.org/wiki/Tier_1_capital

Tier 1 is 4% iirc. Tier 2 8%

http://en.wikipedia.org/wiki/Fractional-reserve_banking

Good expalnation of it all here

It was though pesky non risk weighted "cash" assets that actually werent that got them into trouble in the first place.

ETFS are appearing daily, now pledged to be bought up by certain CBs.

In fact, the only Tier 1 cash asset any bank needs is a good friend at a central bank.

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hi, i struggle to understand this tier stuff, i though northern rock had a 78-1 reserve ratio when they went under, i just figure that this Basel agreement is so the governments of the west can eat up the consumer market as a whole and offer a consumer driven bank kinda like the nhs where the people must pay through income tax to have an account to deposit into.

bank of america had large bad derivatives moved into it from its banking buddies so they could take the heat and remove the bad derivatives from the market and into the governments hands to tax the populations to cover the costs of such bad business practices and prop up a dead market.

"Mr Carney explained that the new system would ensure that bank shareholders, and lenders to banks such as bondholders, would become first in line to bear the brunt of future losses if banks could not pay out of their own resources."

i though this was the case before the rules were changed for the 2008 great recession?

"The FSB has published a list of 30 banks it regards as "systemically important", meaning their collapse could have a wider impact on global financial systems.

In the UK, the banks are Barclays, Standard Chartered, HSBC and the Royal Bank of Scotland."

heres the list of the next banks guaranteed to be bailed out due to "systemically important", so i assume that by example of bank of america we can expect barclays (or standard chartered etc.) to have lots of bad derivatives moved into its accounts from its banking buddies to finish of the start of the next collapse and wipes those retarded loans out of the market place and tax us for the luxury.

"Lehman Brothers was the classic case of a financial institution that was too big to fail - or at least it probably was according to the previous Federal Reserve chairman Ben Bernanke.

Of course it DID fail"

am i wrong? and how does this tier stuff work. i am very interested in what a bank actually holds other than **** when it comes to the introduction of this agreement and it seems that it is all a waste seeing as the rules will change for the next event.

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Worth remembering that Northern Rock had a tier one of 8% when it sank.

When you read the BIS blurb and get to the derivatives bit,hope is clearly a strategy for regulators.

Quite why they allow retail banks to trade/hold derivatives I just don't know.

Northern Rock's problem was a liquidity issue rather than a capital one. It was actually a solvent bank when all the money was withdrawn. However, once a bank run starts, it does not matter how strong your capital position -you are doomed.

I have not read the full details on derivatives, but I would presume that these derivatives are for hedging purposes, both client and bank's risk, rather than speculation.

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Northern Rock's problem was a liquidity issue rather than a capital one. It was actually a solvent bank when all the money was withdrawn. However, once a bank run starts, it does not matter how strong your capital position -you are doomed.

I have not read the full details on derivatives, but I would presume that these derivatives are for hedging purposes, both client and bank's risk, rather than speculation.

It wasnt solvent because it couldnt cash in its capital assets on demand.

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It wasnt solvent because it couldnt cash in its capital assets on demand.

That is not a standard definition of solvency. What do you even mean by "capital assets", let alone cashing them in on demand?

NR had insufficient liquidity to meet withdrawal requests, as a result of having insufficient liquid assets and having wholesale debt on too short a maturity.

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That is not a standard definition of solvency. What do you even mean by "capital assets", let alone cashing them in on demand?

NR had insufficient liquidity to meet withdrawal requests, as a result of having insufficient liquid assets and having wholesale debt on too short a maturity.

Indeed, the definition of insolvency is failing to meet debts as they become due.

The whole banking system was unable, as a whole to meet such debts at that time.

NR was just one part of it.

And part of the problem was that some "as cash" assets were suddenly, uncashable. Many would still be if central banks werent buying them up.

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Indeed, the definition of insolvency is failing to meet debts as they become due.

The whole banking system was unable, as a whole to meet such debts at that time.

NR was just one part of it.

And part of the problem was that some "as cash" assets were suddenly, uncashable. Many would still be if central banks werent buying them up.

The definition usually meant by insolvency is liabilities exceeding assets on the balance sheet I.e. a negative equity position.

NR ran out of money because wholesale lenders would not roll short term loans and the panic spread into retail. The liquidity reserves that it had would have been insufficient to survive a bank run, as is pretty much always the case.

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http://www.bis.org/publ/bcbs270.pdf

BIS lays out 3% leverage ratio for non risk weighted.

http://en.wikipedia.org/wiki/Tier_1_capital

Tier 1 is 4% iirc. Tier 2 8%

http://en.wikipedia.org/wiki/Fractional-reserve_banking

Good expalnation of it all here

The figures you are quoting are from either Basel I or Basel II.

These have now been replaced by Basel III which is a much tougher minimum - basically a minimum of 7% equity. Bigger firms need even more - closer to 10%.

Capital requirements have essentially doubled since the crisis.

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1. To come in from 2019

2. After next crash. Probably.

3 Banks will get it all watered down by then

I doubt a half of it will come in.

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The definition usually meant by insolvency is liabilities exceeding assets on the balance sheet I.e. a negative equity position.

NR ran out of money because wholesale lenders would not roll short term loans and the panic spread into retail. The liquidity reserves that it had would have been insufficient to survive a bank run, as is pretty much always the case.

In that case, there would be no banking insolvencies...wait...there havent been...theyve ALL been bailed, sold, depositors moved.

Insolvency in the real world means an entity that cant pay. You can call it illiquidity if you like, but that is no different to a mortgage holder defaulting on his loan, yet has £180K on average asset he goes home to every day.

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hi, i struggle to understand this tier stuff, i though northern rock had a 78-1 reserve ratio when they went under, i just figure that this Basel agreement is so the governments of the west can eat up the consumer market as a whole and offer a consumer driven bank kinda like the nhs where the people must pay through income tax to have an account to deposit into.

bank of america had large bad derivatives moved into it from its banking buddies so they could take the heat and remove the bad derivatives from the market and into the governments hands to tax the populations to cover the costs of such bad business practices and prop up a dead market.

am i wrong? and how does this tier stuff work. i am very interested in what a bank actually holds other than **** when it comes to the introduction of this agreement and it seems that it is all a waste seeing as the rules will change for the next event.

I'm not sure which measure you're referring to.If it's Tier one was 8% then it's unlikely it's cash reserve ratio was leveraged at 78-1

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Northern Rock's problem was a liquidity issue rather than a capital one. It was actually a solvent bank when all the money was withdrawn. However, once a bank run starts, it does not matter how strong your capital position -you are doomed.

I have not read the full details on derivatives, but I would presume that these derivatives are for hedging purposes, both client and bank's risk, rather than speculation.

Quite,no bank will have enough liquidity to deal with 90% of depositors wanting their cash out.

Point taken re hedging.The problems are several imo mainly as a result of the growth in counterparty risk that has resulted from a booming of the shadow banking sector worldwide,rehypothecation-dependent upon national regulators- and various dubious accounting practices that have created the potential for an implosion.

You'd know a lot more than me about the margin/collateralization requirements of various derivatives markets.But I'd be interested if you could point me in the right direction

Also,I remember reading sometime ago -in the FT iirc-that banks could carry assets at par on a risk weighted basis- if they were hedged adeqautely.

Can you shed any light Ah-So?

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The figures you are quoting are from either Basel I or Basel II.

These have now been replaced by Basel III which is a much tougher minimum - basically a minimum of 7% equity. Bigger firms need even more - closer to 10%.

Capital requirements have essentially doubled since the crisis.

The BIS paper is Jan 2014 for implementation after Jan 1 2015.You're right.that's only for the leverage ratio of 3%.

Here's the Jan 2013 Basel Phase in arrangements.7% common equity is for 2019

http://www.bis.org/bcbs/basel3/basel3_phase_in_arrangements.pdf

Worth noting Tier One capital is going up to 6%...eeek?City nosebleeds all round.

Just looking at BIS,last Basel 3 update was Jan 2013 from what I can see.

Edited by Sancho Panza

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Quite,no bank will have enough liquidity to deal with 90% of depositors wanting their cash out.

Point taken re hedging.The problems are several imo mainly as a result of the growth in counterparty risk that has resulted from a booming of the shadow banking sector worldwide,rehypothecation-dependent upon national regulators- and various dubious accounting practices that have created the potential for an implosion.

You'd know a lot more than me about the margin/collateralization requirements of various derivatives markets.But I'd be interested if you could point me in the right direction

Also,I remember reading sometime ago -in the FT iirc-that banks could carry assets at par on a risk weighted basis- if they were hedged adeqautely.

Can you shed any light Ah-So?

Not shedding light, but pre 2007, some assets were considered "as cash".

Banks had eliminated risk.

which of course, they hadnt, but carried on as if they had...until one day, there was no cash from anyone for the assets held as cash. Step up with QE.

The central bank then became the market...and as they are the market, the banking system decides what the value of the assets is.

As I allude to occasionally, with this system, you could float the entire banking system into space, and it would thrive on paper.

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