Bcbs Risk-Weights

[spyguy]

Buttonwood posts the thoughtful comments.

Here's a good one:

http://www.economist.com/blogs/buttonwood/2015/05/finance-and-economics

http://www.economist.com/blogs/buttonwood/2014/11/great-financial-crisis-0

There's one I read a whole back. I it, he said that banks part returns were all down to huge leverage rather than any innate skill of bankers.

Crank down leverage and *poof* all those returns disappear.

Edited April 15, 2016 by spyguy

[Ah-so]

Regarding second charge mortgages, there's some bits and pieces here. The precipitous fall off of second charge mortgage lending post-2008 would lead me to suspect that the PovertyLater strategies are chump change at present, but the KPMG report gives no details about the breakdown between OOers and BLTers in the past. This piece suggests that its more OOer mortgage prisoner driving a present resurgence in second charge business.

Stepping back a little, the big lenders are unlikely to fake their data. They could easily be caught and they are unlikely to risk of losing the commercial advantages of being A-IRB. As the A-IRB risk-weight is feeding off the data directly it is essentially telling you that for Lloyds, the BTL stuff has outperformed the owner-occupier stuff, which is what you'd expect given the relative weighting of interest-only and repayment in the two sectors and the incredibly low interest rates since 2008.

It is possible that different parts of the loan book are measured using different risk weighting models this giving apparently illogical risk weighting readings:

http://ftalphaville.ft.com/2009/01/19/51323/fsa-relaxes-bank-capital-rules/

Edited April 15, 2016 by Ah-so

[Ah-so]

It is possible that different parts of the loan book are measured using different risk weighting models this giving apparently illogical risk weighting readings:

http://ftalphaville.ft.com/2009/01/19/51323/fsa-relaxes-bank-capital-rules/

To flesh this out a bit more, there are two different methodologies for calculating the probability of default: point-in-time or through-the-cycle. Using these it is possible that a certain times in the cycle the riskier asset could require fewer RWAS than the safer asset,even if historically losses have been higher. This might seem counter-intuitive and utterly barmy, but that is the reality.

[Neverwhere]

There's a good article on the FT today:

http://www.ft.com/cms/s/0/7d8d0e14-024d-11e6-99cb-83242733f755.html#axzz45t95e4mb

The Treasury head idiot civil servant is off.

His leaving comment relates to the UKGOV might not ever see what it paid for RBS.

UK banks were like bombs i nhe run up to 2007. We ended up playing pass the parcel.

That idiot Brown made the UK pick up the parcel when it exploded.

There's a good comment, and it relates to whats happening in banks - layoffs, branches shutting, running away from investment banks:

'The days of banking on a sliver of permanent capital, leveraged with debt, producing fat returns for shareholders and even fatter ones for bank executives, are over. Today’s regulators demand ever more capital. The banks are resisting, arguing that reduced leverage cuts the amount they can lend, restricting good things like economic growth and animal spirits.'

I like the final summation of Ingredients for a bear market

The FT headline for anyone who doesn't have a subscription and wants to access it via google is 'No wonder ex-Treasury chief wants to cut and run on RBS stake' BTW.

[Neverwhere]

It is possible that different parts of the loan book are measured using different risk weighting models this giving apparently illogical risk weighting readings:

http://ftalphaville.ft.com/2009/01/19/51323/fsa-relaxes-bank-capital-rules/

To flesh this out a bit more, there are two different methodologies for calculating the probability of default: point-in-time or through-the-cycle. Using these it is possible that a certain times in the cycle the riskier asset could require fewer RWAS than the safer asset,even if historically losses have been higher. This might seem counter-intuitive and utterly barmy, but that is the reality.

I can see why the BCBS might not be that comfortable including IPRE in IRB in light of that! Very interesting, thanks.

[Bland Unsight]

This is now getting pretty nerdy, even by the high standards of this thread, but if you look at the table from the Lloyds Pillar 3 disclosure at post #114, given again below for convenience, you can see that the probability of default (PD) is higher for the BTL but the resulting Loss Given Default (LGD) is lower for BTL, the balance of these two factors probably explains why the resulting risk-weight is slightly lower.

A bit tangential, but I stumbled on it and it sums up why regulators are minded to take high-LTV interest-only BTL out of A-IRB

Model uncertainty can arise from issues such as the price of properties being difficult to evaluate accurately in advance, or the possibility of a sudden unexpected change in the weighted average mortgage LGD of a firm, eg from a crash in the housing market. Therefore we consider that firms should continue to apply the LGD floor in advance of the implementation of the CRR as this would mitigate this risk of insufficient capital being held due to over-reliance on banks’ internal models, and hence mitigate risks to the PRA’s safety and soundness objective.

Source: PRA Consultation Paper, CP4/13, Credit risk: internal ratings based approaches, March 2013

I think a TL;DR argument for the entire thread would be that you need these models to work when house prices crash, but they probably don't, and they probably enable the excessive risk taking by lenders and borrowers that drives prices away from earnings and makes a crash possible.

[Ah-so]

This is now getting pretty nerdy, even by the high standards of this thread, but if you look at the table from the Lloyds Pillar 3 disclosure at post #114, given again below for convenience, you can see that the probability of default (PD) is higher for the BTL but the resulting Loss Given Default (LGD) is lower for BTL, the balance of these two factors probably explains why the resulting risk-weight is slightly lower.

A bit tangential, but I stumbled on it and it sums up why regulators are minded to take high-LTV interest-only BTL out of A-IRB

Source: PRA Consultation Paper, CP4/13, Credit risk: internal ratings based approaches, March 2013

I think a TL;DR argument for the entire thread would be that you need these models to work when house prices crash, but they probably don't, and they probably enable the excessive risk taking by lenders and borrowers that drives prices away from earnings and makes a crash possible.

If your LGD figures are largely based upon LTV then you might model lower RWA requirements. But this might not take into account the full speculative nature of BTL or the greater sensitivity of IO mortgages to interest rate rises. Our take into account the behaviour of BTL owners in certain market conditions.

BTL is a newer industry and banks' own understanding of it is clearly less sophisticated than owner occupier mortgages (hence the BOE's concern).

In conclusion, I would not take modelled RWAs had being any accurate predictor of credit risk.

[Bland Unsight]

If your LGD figures are largely based upon LTV then you might model lower RWA requirements. But this might not take into account the full speculative nature of BTL or the greater sensitivity of IO mortgages to interest rate rises. Our take into account the behaviour of BTL owners in certain market conditions.

BTL is a newer industry and banks' own understanding of it is clearly less sophisticated than owner occupier mortgages (hence the BOE's concern).

In conclusion, I would not take modelled RWAs had being any accurate predictor of credit risk.

Agree absolutely.

I suspect that there is a massive feedback here, where first the A-IRB rules allow the banks to lend a bonkers amount, stoking prices and setting the stage for a massive reversal of prices, i.e. 40%+, when the music stops and the BTL sector becomes a net seller. However on a price move like that the LTVs shift so profoundly that the LGD calculated on the assumption that smaller moves would be seen becomes irrelevant and the actual losses that turn up are way outside what the model said would turn up. I should have written something like "The model tells Lloyds that the LGD on BTL is less than on owner-occupier lending", which is obviously not the same thing as the LGD actually being shown to be lower in the fullness of time.

[Neverwhere]

Agree absolutely.

I suspect that there is a massive feedback here, where first the A-IRB rules allow the banks to lend a bonkers amount, stoking prices and setting the stage for a massive reversal of prices, i.e. 40%+, when the music stops and the BTL sector becomes a net seller. However on a price move like that the LTVs shift so profoundly that the LGD calculated on the assumption that smaller moves would be seen becomes irrelevant and the actual losses that turn up are way outside what the model said would turn up. I should have written something like "The model tells Lloyds that the LGD on BTL is less than on owner-occupier lending", which is obviously not the same thing as the LGD actually being shown to be lower in the fullness of time.

[Ah-so]

Agree absolutely.

I suspect that there is a massive feedback here, where first the A-IRB rules allow the banks to lend a bonkers amount, stoking prices and setting the stage for a massive reversal of prices, i.e. 40%+, when the music stops and the BTL sector becomes a net seller. However on a price move like that the LTVs shift so profoundly that the LGD calculated on the assumption that smaller moves would be seen becomes irrelevant and the actual losses that turn up are way outside what the model said would turn up. I should have written something like "The model tells Lloyds that the LGD on BTL is less than on owner-occupier lending", which is obviously not the same thing as the LGD actually being shown to be lower in the fullness of time.

And even more shockingly, a risk weight of around 10% means that the banks only need to hold about 1% of equity against any particular BTL loan. A safety margin of £1 fit every £100 leant. No wonder the market has boomed with risk being so badly mispriced.

When BTL and owner occupier risk weights are basically the same, it obviously asked the question of why BTL loans are so much more expensive than OO loans. If the risks are the same, then surely the rates should be the same.

The price of the loans is probably a better indicator of the relative risks of the two types of mortgage, not the self-assessed risk weights.

[Bland Unsight]

And even more shockingly, a risk weight of around 10% means that the banks only need to hold about 1% of equity against any particular BTL loan. A safety margin of £1 for every £100 leant. No wonder the market has boomed with risk being so badly mispriced.

Exactly, it's not just the borrowers who are taking a massive punt on UK property at these prices, with so much of growth of the stock of secured mortgage lending since 2008 taking place in the BTL sector, a number of lenders are using their depositors' money to take the same, daft punt.

[spyguy]

At long last the regulators have put some figures into a model, applied a bit stress and ... dont like what they see:

http://www.ft.com/cms/s/0/c87e95e0-0320-11e6-af1d-c47326021344.html#axzz45ziALLtq

Risk weighting for banks is only going one way, esp. for property.

Maybe theyve finally learned their lesson?

[Ah-so]

More risk weighting news on IRB vs standardised

https://assets.digital.cabinet-office.gov.uk/media/5710dc73ed915d117a00006d/addendum-to-provisional-findings-with-appendices.pdf

[Neverwhere]

More risk weighting news on IRB vs standardised

https://assets.digital.cabinet-office.gov.uk/media/5710dc73ed915d117a00006d/addendum-to-provisional-findings-with-appendices.pdf

Appendix 2 is pretty interesting!

(Although the results given - which are preliminary in any case - are specifically in regards to OO residential lending so may not be directly applicable to BTL RW changes.)

APPENDIX 2

Summary of Bank of England research on the impact of risk

weights on pricing in the UK owner-occupied residential mortgage

market

Summary

Background—The BoE/PRA is conducting research on the impact of risk weights on mortgage pricing. The research is still in progress, but the BoE has agreed to share with the CMA some of the preliminary results. The BoE expects to further refine the model and further check data quality—both could affect the results.

The research focuses on evidence that firms who calculate mortgage risk weights using the IRB approach tend to have lower risk weights than firms who use the SA, and more so for lower-LTV mortgages. This gap between risk weights for firms using IRB models and those using the SA was highlighted in the CMA’s preliminary findings report.¹ (In the following, the labels ‘IRB firms’ and ‘SA firms’ are used to identify the two groups of firms).

Data—The research is based on a dataset derived from the FCA’s Product Sales Database (PSD)², that contains all mortgages originated by banks and building societies³, and secured on UK owner-occupied residential property, between 2005Q2 and 2015Q2. The loan data is matched with two other datasets. First, data on whether the originating firm was on IRB or not on the date that the loan was originated. This gives a sample with approximately 7.4 million loans (sample A). Second, information on the historical risk weights used by IRB firms over the period 2008-15, which was collected with the help of the CMA. This gives a smaller sample with approximately 6.6 million loans (sample B ) because historical weight data is available for only a subset of firm-years.

Methodology—To test the impact of risk weights on pricing, the research uses three different model specifications. These can be ordered in terms of increasing tightness of identification, or extent of controls for factors other than risk weights that might be driving variation in prices (initial interest rates at the point of origination):⁴

1) The regime change model is perhaps the most intuitive. However, it implicitly assumes that all firms switch to IRB at the same time, and the controls are relatively coarse.

2) The IRB switch model uses information on individual firms’ switch dates, and adds more granular controls.⁵

3) The historical risk weights model has the same controls as the IRB switch model, but captures the risk weight variation directly. However, we only have the risk weight data for a subset of firms and years, as mentioned above.

Preliminary results—The preliminary results so far all point to a positive sign (lower risk weights lead to lower prices). The effects appear to be material for low-LTV mortgages, in particular in the regime change and IRB switch models. However, the results of the historical risk weights model, which allows for the tightest identification, are not robust to changes in the sample period: they are economically significant for 2009 Q1-2015Q2, but not for the full 2005Q2-2015Q2 sample. Further work is required to understand how material the effects are.

Limitations—The research approach captures only imperfectly credit risk, which is correlated with risk weights, and is likely to bias (upwards) the estimated impact of risk weights on prices. Moreover, comparisons of average risk weights between IRB and SA firms could be biased by self-selection if the firms that have stayed on SA are those with riskier portfolios and hence with less to gain from IRB models in terms of risk weights. At the moment, the research does not take into account the effect of securitisations and other aspects of the regulatory framework for capital (e.g. capital ratio, leverage ratio), and it does not include specialised lenders (non-deposit takers). The quality of the information provided by firms on historical risk weights has not been audited.⁶ Finally, the magnitudes of the results are sensitive to which firms and years are included in the sample.

[. . .]

The historical risk weights model

The last model is a fixed effects model that uses information about historical risk weights (by LTV band). Otherwise, the model is similar to the individual IRB switch model.

The size of effect depends on the sample period. We focus on two subsamples of sample B (we do not have the data to estimate this model on sample A):

• 2009Q1-2015Q2: the period during which the IRB-SA regime is in place (excluding 2008 because of limited data, transitional effects of the new regime, and the impact of the financial crisis).
• 2005Q2-2015Q2: this is the full period for which we have data available. Within the period 2005-2007 however there is no variability in risk weights (50% for all firms/mortgages).

The results for 2009Q1-2015Q2 indicate a 1.4bp reduction in price per 1pp reduction in risk weights (here the relevant change in risk weights can be both within the same LTV and between LTVs). The impact in terms of price difference between IRB and SA firms can be calculated by multiplying this coefficient by the risk weight gap between IRB and SA firms. As a result the impact is larger for low LTV mortgages, where the IRB-SA risk weight gap is largest. This results in a 42bp reduction in price for a 30pp difference between SA and IRB that is typical for LTV ≤ 50%.

The results for 2005Q2-2015Q2 indicate a much weaker effect (about 1/10^th the size of the estimate for 2009Q1-2015Q2) and the effect on pricing for the same 30pp difference in risk weights is around only 3bp.

¹ CMA (2015),’Retail banking market investigation: Provisional findings report’.

² The FCA Product Sales Data include regulated mortgage contracts only, and therefore exclude other regulated home finance products such as home purchase plans and home reversions, and unregulated products such as second charge lending and buy-to-let mortgages.

³ Non-deposit taking (“specialist”) lenders are not included, except in a small number of cases where the lender is a subsidiary of a deposit taker and is not just a specialist lender. We also excluded one large lender [redacted] in the pre-2008 period due to concerns related to the reported data.

⁴ PSD does not include information on fees and changes in interest rates after origination (e.g. at the end of a fixed-rate period).

⁵ Both the regime change and the IRB switch model capture the variation in risk weights indirectly, using a dummy variable for the switch to IRB as a proxy for the decline in risk weights that we know is typically associated with such a switch. We observe this proxy for all firms and time periods in our samples (see below).

⁶ The information obtained by the CMA and PRA for this exercise differs from other risk-weight data obtained by the PRA in the past.

For context, from the same CMA paper:

And from the BCBS SA and IRB proposals:

1.5.3 Land acquisition, development and construction (ADC) exposures

ADC exposures would be risk-weighted at 150%, consistent with the 2014 consultative document. This category would include loans to companies or SPVs financing any of the land acquisition, development and construction of any residential or commercial properties where the source of repayment at origination of the exposure is either the future uncertain sale of the property or cash flows whose source of repayment is substantially uncertain. ADC exposures would also include loans to companies or individuals to finance the acquisition of finished properties where the repayment of the loan depends on the future uncertain sale of the property.

Finally, the Committee proposes to remove the IRB approaches for specialised lending [Project finance, Object finance, Commodities finance, IPRE, HVCRE] that use banks’ estimates of model parameters. This reflects its expectation that banks are typically unlikely to have sufficient data to produce reliable estimates of PD and LGD. The Committee proposes to leave only the standardised approach and the current IRB supervisory slotting approach.

[The Knimbies who say No]

the BTL risk weight proposals will(depending on LTV) add roughly between15-50 basis points on the cost of funds alone per percent debt costs (it is 2% in example above, so that means the cost of funds rise by 50-100 basis points if you adjust the risk weights to the proposed 70%-120%, if I've followed the sums properly...

Presumably this may feed through to offered rates for new loans, and dependent on margins a lender applies to lending vs costs of funds (say 2%- so 2.28% cost of funds may be loaned out at 4.28%) it may translate as a 10%-25% rise in IO mortgage payments(debt costs only of course). Wonder what that might do to the average BTLer.

But just think of that extra dollop in the basic rate tax credit on the debt interest relief that the highly geared BTLer can look forward to as a result.

Edited April 21, 2016 by The Knimbies who say No

[Neverwhere]

the BTL risk weight proposals will(depending on LTV) add roughly between15-50 basis points on the cost of funds alone per percent debt costs (it is 2% in example above, so that means the cost of funds rise by 50-100 basis points if you adjust the risk weights to the proposed 70%-120%, if I've followed the sums properly...

Presumably this may feed through to offered rates for new loans, and dependent on margins a lender applies to lending vs costs of funds (say 2%- so 2.28% cost of funds may be loaned out at 4.28%) it may translate as a 10%-25% rise in IO mortgage payments(debt costs only of course). Wonder what that might do to the average BTLer.

But just think of that extra dollop in the basic rate tax credit on the debt interest relief that the highly geared BTLer can look forward to as a result.

I'm sure they will relish the prospect!

I think the difference between the full period (2005Q2-2015Q2) and the later period (2009Q1-2015Q2) taken in isolation is potentially interesting when considering the possible impacts of the proposed RW changes. No doubt it reflects lenders' increased wariness of risk, post financial crisis. In light of that I wonder whether the relative impact of RWs on prices would increase at the upper end of the scale? Or in the event of a HPC? Or, for that matter, a base rate rise?

As the preliminary results that have been disclosed are limited to OO residential mortgages, and specifically don't cover unregulated BTL loans, there is also the possibility that they may not hold true for this particular sector of the market because of other factors. Hopefully the Bank are conducting similar research with regards to BTL and will publish it alongside the OO data in due course.

[Sancho Panza]

Some help for the slow starters like myself

Basel for Dummies

http://treasurypeer.com/dummies-2/basel-3-for-dummies/

Basel III

An easy to understand Summary

http://www.icreate.in/pdf/Basel%20III%20-%20An%20easy%20to%20understand%20summary.pdf

[Bland Unsight]

Some help for the slow starters like myself

Good stuff!

[Bland Unsight]

Global accounting giant KPMG put out an annual report on the challenger banks and the latest one was out yesterday it seems.

Updated risk weightings for BTL mortgages

On 10 December 2015, the Basel Committee published a second consultation document, “Revisions to the Standardised Approach for credit risk”. This contained more bad news for Challengers with significant BTL portfolios, because the proposals add a risk-weighting premium to BTL mortgages. This means that, assuming the proposals go ahead as planned, more regulatory capital will need to be held against BTL mortgages, increasing the cost of providing them. For example, risk weights could increase for BTL mortgages from 35 percent to potentially a maximum of 120 percent depending on the underlying LTV (in a worst case scenario). Any resultant capital shortfall would need to be met either by returning less to investors through dividends or by raising additional funds.

The stock market seemed particularly concerned about the potential impact of the proposed changes: share prices of a number of listed Challengers fell by up to 10 percent over the three trading days following the announcement.

There is absolutely nothing new here for posters and lurkers who have been following this thread, but once again, still interesting to see the understanding seeping through into the mainstream.

The KPMG 'report' was alluded to in a piece in Mortgage Introducer, "Additionally proposed changes from the Basel Committee could see a risk weighting premium added to buy-to-let mortgages has the potential to have a huge impact on the sector."

[Bland Unsight]

Thread readers and contributors may also recall that in December 2015, in response to the second consultation document, the BTL lenders shat bricks and ran round to the Bank of England crying for mummy, (or something like that).

They emerged and told the one of the industry rags that that they had been reassured, (Mortgage Solutions, Regulator reassures challenger banks over Basel buy-to-let capital hikes, 16 December 2015).

As we discussed at the time, the lenders leaked part of the letter the Bank used to 'reassure them' but the leaked section did not support the idea that the BTL lenders had been offered any reassurance, only that capital for the banking sector as a whole would not need to increase as a consequence of the changes to risk-weights. We've also noted since then that Sir John Cunliffe, Deputy Governor of the Bank of England (Financial Stability) when giving evidence at the House of Lords Economic Affairs Committee inquiry on housing closed the file on the quality of the reassurance. I was prompted to look and see if the transcript of his oral evidence was up yet, and it is:

Sir Jon Cunliffe:

There are proposals out for consultation, and Basel committee proposals have changed in the past as a result, so I do not know what the final outcome will be. That package does involve some higher-risk weights in some areas, but it also makes the risk weights for owner-occupier mortgages, for example, more risk sensitive and reduces the risk cost. So this is not an “everything’s gone up” situation.

Lord Forsyth of Drumlean:

It increases the risk for those that are at the higher percentage—

Sir Jon Cunliffe:

The risk goes up at higher LTVs and for buy to let relative to owner occupiers, and the risk goes down for the others. There are judgments.

Source

If being told that the regulator is indeed gonna f**k you up is your idea of reassurance, then everything is going swimmingly for crap banks that bet big on interest-only buy-to-let, (which may explain why there is 30%-40% off their share prices since last July).

Edited May 5, 2016 by Ghost Bird

[Venger]

That package does involve some higher-risk weights in some areas, but it also makes the risk weights for owner-occupier mortgages, for example, more risk sensitive and reduces the risk cost. So this is not an “everything’s gone up” situation.

That reads to me that would be home-buyers may be at an advantage, with financing, vs BTL, at some future point. (And because of C.24/stamp duty hike).

Interesting read. It may be because I'm hopeful of HPC, that I believe some of the answers are simply to play to all sides (supply and demand), but that there are hints of how they really think it will play out.

Sir Jon Cunliffe: The other thing that has come in increasingly over the last 15 years is not owners occupiers but buy to let. Virtually all the growth in mortgages over the last few years has come from buy to let, not owner occupier.

..Sir Jon Cunliffe: A lot of the growth that we have seen has been because this has looked to be an asset that gives relatively good return at a time when many other assets - pensions or otherwise - are not giving a good return.

re long passage on BTL / not knowing how BTLers-landlords would react / different opinions OBR vs Council of Mortgage Lenders and others

..Sir Jon Cunliffe: Of course, you also need to estimate whether, if a number of buy-to-let landlords with mortgages exit the market and the flow of new buy-to-let mortgages goes down because of the extra stamp duty, that means more first-time buyers coming into the market because there is a slowing in house-price growth.

[Bland Unsight]

The following Moody's commentary might be shown in the fullness of time to be something of an understatment.

The change to a stable outlook on the deposit and senior unsecured ratings reflects some headwinds on asset risk and capital. Moody's deems buy-to-let mortgages to be inherently riskier than owner-occupied mortgages because they are more procyclical than owner occupied-mortgages; Coventry's higher-than-peers holdings of buy-to-let mortgages exposes the Society to some uncertainty on the performance of these portfolios, following recent regulatory actions on the sector. Additionally, Coventry's strong capital ratios could decrease in the event that mortgage risk weight floors are imposed by the Prudential Regulation Authority or if the Basel Committee on Banking Supervision consultation on standardised risk-weighted assets suggests significantly different risk-weight for buy-to-let loans. Finally, Moody's expects some pressure on Coventry's net interest margin due to increased competition in the UK mortgage market and a possible slow-down in the buy-to-let sector, although this is mitigated by the Society's strong efficiency.

(Emphasis added)

Source: Moody's affirms Coventry Building Society's ratings with stable outlook, 6 May 2015

[Neverwhere]

HSBC’s Mackay Says ‘We’re All Stuffed’ If Basel Sticks to Plan

By year-end, the Basel group plans to issue new standardized approaches for measuring credit and operational risk. New market-risk rules published in January will result in a weighted mean increase of about 40 percent in trading-book capital charges, the regulator said. It also plans to restrict banks’ use of the so-called internal ratings-based approach, in particular by setting floors to limit how far internal models may diverge from standardized approaches.

[. . .]

The PRA, part of the Bank of England, sets additional minimum requirements that vary by bank, known as Pillar 2A, to cover “shortcomings in the measures of risk-weighted assets,” and a Pillar 2B requirement, known as the PRA Buffer, for risks not captured by other buffers.

These buffers give the PRA some leeway, but Mackay said it wouldn’t suffice.

“If you take the Pillar 2A of HSBC and all its competitors and add it all up, it doesn’t come to a small fraction of what you add up for the possible impact of standardized, IRBA, operational risk and the market risk components,” he said. “You sort of have to put yourself in a position where you either believe that there will be no flex off the current consultation, in which case I think we’re all pretty much stuffed.”

[Venger]

Picked up on this a few days ago. Hoping this is an ok thread to quickly share it on. In part it reads to me like some bankers moaning and seeking some of it relaxed - and in the name of banks wanting to make as much profit as possible, got to expect them to whine a bit, to see if there is any give.

HSBC’s Mackay Says ‘We’re All Stuffed’ If Basel Sticks to Plan

Banking outside U.S. would grind to a halt on rules, he says
Most people believe Basel will soften proposals, Mackay says

May 19, 2016

http://www.bloomberg.com/news/articles/2016-05-19/hsbc-s-mackay-says-we-re-all-stuffed-if-basel-sticks-to-plan

Below; just a fair-use one-sentence snippet, because of uncertainty to WSJ's copyright policy. Been following Italian banking drama. So that Atlas fund and the manouvering to get other banks and investors to float it, rather than Italy Govt directly which is no so much an option anymore (is my understanding). It all seems to keep pressure on to improving bank conduct and lending decisions - hopefully leading to making loans to those who are good risks to actually repay and honour their debts (especially when outbidding others in housing market). However long way from that for Italy and its bank system debts. It's just that Italy banking system could, if allowed, make it easier to chip in with rebalancing, but seems they've got to follow the rules. Good really as it prevents bailing out bad decisions, and is likely to lead to more balanced reforms (bankruptcy laws).

I know a lot of us are interested in trying to get a view on the lending picture going forwards.

The Wall Street Journal

Italian Banks: A Painfully Slow Repair Job Hurts Everyone
May 11, 2016

[...]Italy has faced two obstacles in addressing bad loans. European rule changes on state aid in 2013, before Italy’s bad loans really burgeoned, have blocked any use of government money in a bad bank.

Edited May 28, 2016 by Venger

[Venger]

Hehe; sorry Neverwhere. I had window open too long, and you got to it before me, in #153.

Coincidence.