Friday, January 23, 2015

Scene 5 on the crazy reality lived while “Banking in times of the Basel Committee”

Jr. Credit Officer Martin: “Sir, I am not sure AIG deserves its AAA rating, and we keep somewhat important exposures to it. May I take a couple of our officers and assign them to do a little credit worthiness research on their own?”

Bank President Wally: “Have you gone raving mad? Do you know what that would cost? And who is going to pay us for that? The credit rating agencies have access to privileged information that AIG would never ever dream of giving to you, much less if they got hold of that you questioned their AAA rating...  So forget it! If the Base Committee and the Financial Stability Board considers that being able to get an AAA rating from a credit rating agencies merits us to being able to leverage our equity more than 60 times to 1, then those ratings must be good enough for us”

Jr. Credit Officer Martin: “But Sir?”

Bank President Wally: “No! No I do not want to hear any more buts from you! Have you no idea what the low, almost non-existent equity requirements for anything related to a good credit rating, the AAArisktocracy, has to do with the extremely high returns on equity our shareholders obtain... or with the fairly decent bonuses we get?”