Wake up! Banks should be banks. Not an ever-growing source of jobs for regulators and supervisors.
A comment on the FED, FDIC and OCC proposed rules to strengthen capital requirements for large banks.
“The US practice had been to asses capital adequacy by using a simple “leverage ratio”-in other words, the bank’s total assets based compared with the margin of capital available to absorb any losses on those assets. (Historically, before, the 1931 banking collapse, a ten percent ratio was considered normal)"
[Then 1988 Basel I introduced the risk weighted bank capital requirements.]
“The assets assigned the lowest risk, for which capital requirements were therefore low or nonexistent, were those that had the most political support: sovereign credits and home mortgages. Ironically, losses on those two types of assets would fuel the global crisis in 2008 and a subsequent European crisis in 2011. The American “overall leverage” approach had a disadvantage as well in the eyes of shareholders and executives focused on return on capital; it seemed to discourage holdings of the safest assets, in particular low-return US government securities."
On July 27, 2023 the Board of Governors of the Federal Reserve System; the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency, requested comments on proposed rules to strengthen capital requirements for large banks.
To print it out I downloaded their main document “Basel III endgame proposal (PDF)” What!!! It contained 1.087 pages. Really? Basel I, contained 30 pages.
When are you going to stop digging yourself (and our banks) deeper and deeper into the hole? How could bank regulations gotten so out of control? Could it be because bank regulation, employing regulators, supervisors and regulation-risk-managers in the banks, have become a profitable industry on its own?
Are we better off? I sure doubt it. In "Against the Gods" Peter L. Bernstein wrote "the boundary between the modern times and the past is the mastery of risk." Mastery? Did we not leave out God’s hand a bit too much?
As you can read, AI and I think a much more fundamental discussion about bank regulations is about 35 years overdue.
The document you really should think to put out for comments (a Plan B that longtime ago should have been Plan A) is: What strategy can be used for getting back to bank capital requirements anyone understands with a 10-minute glance of the balance sheet, without being required to read hundreds of footnotes?
The transition from here to there is not going to be easy. As a starter here is a (Chile inspired) proposal I have toyed around with for a couple of years.
By the way, invite e.g., small businesses and smaller banks for comments. Unwillingly, with regulations for the larger banks, you might discriminate even more against them.
Please: Let’s rescue our banks from dangerously creative capital minimizing/leverage maximizing financial engineers and hand them back to loan-officers dedicated to knowing their client and what their purpose for the credit is.
Add to the above the risk weights of: 0% Federal Government – 100% We the People. I believe that, if you respect your Founding Fathers, you should give the US Constitution some serious considerations.
Are you to ignore this comment and its observations? Just in case I'm not a newcomer on all this.
And, before #AI gets censored or overly regulated, I do feel I have in ChatGPT – OpenAI a strong ally, willing to back up much, probably not all, of what I argue.
A final question: How many banks, regulators and supervisors had USA in 1988. How many in July 2023?
Sincerely,
Per Kurowski
@PerKurowski
Rockville, MD, 20852, USA
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