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Ah-so

FT Blame Basel for the U.K. house price bonanza

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' At its heart, though, the supply of mortgage debt has been driven by three rounds of the international Basel accords. At each round, mortgage debt has been deemed to be increasingly less risky. In Basel 1 in 1992, 50 per cent risk weightings were applied to mortgages. In Basel II, agreed in 2004, that was reduced to 35 per cent. Basel II then added a further twist, introducing an option for banks to calculate their own internal risk weightings. '

 

That final point is quite crucial iirc from the Basel thread given that you don't have to use the standardised approach to risk weighting if you have a large enough dataset.

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That really is a super read and nails the fact that credit creation has played a substantial role in rising house prices worldwide.It's just amazing that noone in the CB's reads the FT.

 

I remember reading an article in the economist back in 2003 talking about the property bubble in the Western world..................................

http://www.economist.com/node/1794873

'There are three reasons why a house-price bubble might cause more harm on bursting than a stockmarket bubble. First, house prices have a bigger wealth effect on consumer spending, largely because more people own their homes than own shares. A study of 14 countries by three American economists, Karl Case, John Quigley and Robert Shiller, found that in most economies a change in property prices had at least twice as big an effect on consumer spending as a change in share prices of the same order.

Second, people are much more likely to borrow to buy a home than to buy shares. Some of them inevitably borrow too much and later have to curb their spending. Third, a decline in property prices also leaves some households with homes worth less than the amount they have borrowed, so housing busts have a greater effect on banks, which are typically heavily exposed to real estate. Falling house prices lead to an increase in banks' non-performing loans, and as their collateral shrinks, so does their capacity to lend.'

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1 minute ago, DrBuyToLeech said:

Indeed, but that implies something  a bit underhand and behind the scenes, whereas the reality of Basel is a massive collaborative consultation exercise with the banks themselves. 

Good point. I've always been struck by how American politicians like to have their corruption out in broad daylight where it's apparently too obvious to object to (e.g. pork-barrel politics). This is another example with the banking sector at large: "hiding in plain sight". The regulators in this case have been hard at work as the new imperial tailors.

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On 15/06/2017 at 9:30 AM, Ah-so said:

Good article linking HPI to the Basel capital rules.

https://www.ft.com/content/fa6ae2e2-50e1-11e7-bfb8-997009366969

"Regulators’ tendency to reduce mortgage debt risk helped drive property gains"

We have focused on here about the increased risk-weighting for buy-to-let under Basel III, but I hadn't realised that they will actually fall for residential mortgages (If I'm reading that article correctly).

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28 minutes ago, Toast said:

We have focused on here about the increased risk-weighting for buy-to-let under Basel III, but I hadn't realised that they will actually fall for residential mortgages (If I'm reading that article correctly).

Theyll fall for residentail mortgages with 30% down, and sub 4 LTV.

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25 minutes ago, Will! said:

Unfortunately it looks like Basel III may be delayed.

Bloomberg:  Global Bank-Capital Talks Falter as Germany Hardens Dissent

Really interesting read and they highlight the issue I referred to earlier.

' The last big sticking point in the talks is a so-called output floor, which limits how much lower banks’ estimates of asset risk generated by their own statistical models can go compared with those produced by standard formulas set by regulators. '

Banks using their own datasets for risk weighting will get away with blue murder

On 17/06/2017 at 2:18 PM, Sancho Panza said:

That final point is quite crucial iirc from the Basel thread given that you don't have to use the standardised approach to risk weighting if you have a large enough dataset.

 

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14 minutes ago, Si1 said:

Are Germany saying they don't want their creditors prevented from borrowing more?

They're arguing over the degree to which bigger banks can vary their lending from what I can see(there are some Basel experts on here like Bland,Neverwhere,Ah-so who may know more)

Small banks use the standardized approach to risk weighting ie the levels set by Basel 1+2.

Bigger banks can use their own datasets -IRB-(if they're deemed big enough) to weight risk.This obviously allows them to view the same person looking for a mortgage in a different way ie it allows them to lend in a manner that's more independent of Basel 3 than a smaller institution.The French and Germans-it would appear-want the big banks to be allowed this freedom whereas the basel committee is saying it should be limited to 25% of the loan book

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On 29/06/2017 at 5:08 PM, Tapori said:

Well the FT had their headline about how Carney and co are going to exit their stimulus policy.

The BOE are so idle they'd prefer it if the FT and like did their "Forward Guidance".

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