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Posts Tagged ‘economic crisis’

Global bankers meet in Basel for reform

Posted by Admin on September 13, 2010

By Brooke Masters and Patrick Jenkins, FT.com
September 10, 2010 — Updated 0113 GMT (0913 HKT)
Death of the Feds
(FT) — Banking supervisors and central bankers from 27 countries will gather in Basel, Switzerland, this weekend to adopt what is set to be the most important regulatory reform package since the financial crisis, even as German, US and other officials continue to jockey over some provisions.
The officials overseeing the Basel Committee on Banking Supervision, the global rule-making body, are expected to set minimum requirements for the amount of top quality capital banks must hold against future losses and announce a timetable for reaching the standards. The figures are set to determine the shape, stability and profitability of global banking for years to come.
Ben Bernanke, chairman of the US Federal Reserve, Mervyn King, governor of the Bank of England, and Jean-Claude Trichet, president of the European Central Bank, are among those meeting on Sunday to thrash out the final details of the banking reform package known as Basel III.
A large group of countries has coalesced round a plan to require banks to hold core tier one capital – essentially equity and retained profits – equal to 5 per cent of their risk-weighted assets, compared with the current requirement of 2 per cent. In a new measure, banks would also have to hold a buffer of additional capital equal to 2-3 per cent of assets, meaning banks that fall below a core tier one ratio of at least 7-8 per cent or face restrictions on their ability to pay dividends and bonuses.
However, some countries have so far refused to sign up and are still pushing for totals as low as 4 per cent or as high as 10 per cent, including the buffer, people familiar with the talks said. Germany has been particularly vocal in its concerns about setting the ratio too high. “It’s not finished,” said one regulator.
The exact numbers could also shift as part of the negotiations over the timetable. US officials would like the minimums in place in 2012 with the buffers a few years later, while a German central banker said this week he expected the minimums and buffers to phase in over five to 10 years starting in 2013. Some participants believe a longer timetable may be the price of tougher numbers.
Analysts believe the outcome may also turn on the issue of so-called contingent convertible capital, nicknamed “cocos”. These instruments, essentially bonds that only convert into equity under a stressed scenario, do not count towards the core tier one minimum, but the French have been arguing that they should be usable to meet the buffer capital requirements. This apparently technical issue could radically change the effect of the regime. If the buffer can be funded with cheaper cocos, the result would be far less severe.
One person close to the process said the Basel group was unlikely to allow exceptions for smaller banks, as some in Germany had hoped. The group will insist the “entire world” be subjected to “a totally level playing field with absolutely no exceptions”, the person said.
Sunday’s meeting may well have to defer decisions on the size of two other planned parts of the package: surcharges for extra-large banks and a second buffer designed to counter the economic cycle.
The influence of the committee’s decisions could be profound. If it sets requirements too low, another banking crisis could result; too high and the world economy could struggle with a lack of credit.
James Gorman, Morgan Stanley’s chief executive, said the Basel reforms were “the single most important reforms that will be made coming out of this financial crisis”.

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Germany and France examine ‘two-tier’ euro

Posted by Admin on June 20, 2010

Germany and France are examining ways of creating a “two-tier” euro system to separate stronger northern European countries from weaker southern states.

Germany and France examine 'two-tier' euro

The creation of a “super-euro” zone would initially include France, Germany, Holland, Austria, Denmark and Finland

A European official has told The Daily Telegraph the dramatic option was being examined at cabinet level.

Senior politicians believe their economies need to be better protected as they could not cope with another crisis on a par the one in Greece.

The creation of a “super-euro” zone would initially include France, Germany, Holland, Austria, Denmark and Finland.

The likes of Greece, Spain, Italy, Portugal and even Ireland would be left in a larger rump mostly Mediterranean grouping.

The official said French and German officials had first spent months examining how to exclude poor-performing states from the euro but decided it was not feasible.

A two-tier monetary system in the 16-member euro zone is being examined as a “plan B”.

“The philosophy is the stronger countries might need to move away from countries they can’t afford to bail-out,” said the official. “As a way of containing the damage, they may have to do something dramatic, though obviously in the short term implementation is difficult.

“It’s an act of desperation. They are not talking about ideal solutions but the lesser of evils. Helping Greece could be done relatively cheaply but Spain they can’t afford to let fail or bail-out.

“And putting more pressure on the people of France and Germany to save other countries is politically unfeasible.”

One option, to protect the wealthier northern European countries and to help indebted southern Europeans, would be for Germany to lead a group of countries out of the existing euro into a new single currency alongside the old.

The old euro would decline sharply against the new German and French dominated currency but both north and southern Europeans would be protected.

Northern economies would be protected from debt contagion and southern countries would be spared the horrors of being thrown out and forced to go it alone.

Angela Merkel, the German Chancellor, has already paid a political price for forcing the rescue plan on a reluctant public, losing her majority in the upper house of parliament in a recent election.

The official pointed out that France held lent £500 billion to Spain and the Germans had lent £335 billion.

Nicolas Sarkozy, the French president, is understood to have been initially cool on the idea but has grown so frustrated with Greece and now Spain that he has allowed officials to explore proposals.

“He would prefer to keep the euro in place but if Spain, Italy and Greece are dragging him down he accepts he may have to cut them loose,” said the official. “They are trying to contain the contagious effect but they don’t have a solution yet.”

The crunch time will come in September, when Spain has to refinance £67 billion of its foreign debt.

“If the markets don’t buy that will trigger a response by Germany and France,” said the official.

Expelling a country from the euro could push the whole region into a slump because European banks are so exposed to debt in southern Europe. The consequences for the exiting country would be even more catastrophic.

“The euro zone debt crisis has a long way to run,” said one senior EU negotiator. “No one knows where it is going to end up. Only one thing is sure, the euro zone will change.”

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