Saturday, July 19, 2014

Mr. George Banks, asked by his board about risk weights, Tier 1 capital and CoCos, decides to better go and fly a kite

At the Board of Directors of Dawes Tomes Mousley Grubbs Fidelity Fiduciary Bank

Mr. Dawes Sr asks: Mr. Banks as it is for us to decide what do you suggest we do?

Should we stop lending to our old and loyal small businesses and entrepreneurs which, because of their high risk weights might lead us to not be in compliance with Tier 1 capital requirements?

Because if we do not do so we will force those old and loyal investors of ours who bought our Contingent Convertible bonds, the CoCos, because they paid slightly higher interest, to convert these into bank shares.

Mr. Banks answers: Yes banking, used to be such fun for a loan officer like me but, since those equity minimizing / leverage maximizing financial engineers took over, that has all changed. It's now all too loony and strange to me. So sorry Sir, I really don’t know how to answer your question, perhaps I better go and fly a kite...

Yes, indeed I think I will!!!

Splendid idea George, with loony regulators like the Basel Committee we all better fly a kite too!

Caveat emptor!

Our dear George Bailey would also not have stood a chance against a Basel Committee.