The Financial Stability Board evidences its utter confusion, again, with their G-SIBs list, a subset of the G-SIFIs.

In reference to “the policy judgment to be informed by various empirical analysis of the systemic risk that the Globally Systemic Important Banks Institutions” pose, in order to set the G-SIBs cutoff score, and determine to which of five “buckets” each one of the monster too big to fail banks belong, the Financial Stability Board published, on November 11, their end-2012 data G-SIB list.

For those who need some translation the G-SIBs are the banks among the Globally Financial Important Financial Institutions, the G-SIFIs.

And we there now find 29 banks, since recently Bank of China was added to the original 28, perhaps because China objected to not having one single bank among that exclusive group of banks.

But, what does all this mean? There are 5 buckets indicating how much additional capital each bank as a percentage of risk-weighted assets a banks needs to hold, for the regulators feeling reasonably sure, the world is secure. These buckets are 1%, 1.5%, 2%, 2.5% and, the horror, the empty 3.5% bucket.

I mention that last one because although “the bucket thresholds will be set initially such that bucket 5 is empty, if this bucket should become populated in the future, a new bucket will be added to maintain incentives for banks to avoid becoming more systemically important… eg if bucket 5 should become populated, bucket 6 would be created with a minimum higher loss absorbency requirement of 4.5% etc)."

If you think the above to sound as a quite infantile regulations, like scaring the children with the boogeyman, I would probably share your appreciation… because what do you think could happen if suddenly regulators got so scared that empty bucket had to be occupied? Would that not cause a crisis by itself?

But let us see how boogeyman the boogeyman really is. The secret is in the “as a percentage of risk-weighted assets”. If the risk weights are low enough that extra capital banks need to hold does not mean much. 

If a G-SIB holds 1/3 each of 0%, 20% and 50% risk-weighted assets, then the currently most G-SIBs, those in the additional 2.5% capital budget, then it is authorized to leverage over 40 to 1. Is this sane?

Why do they not try with an extra 3 percent on all assets, no matter an asset’s risk-weight. That would really put a cracker in the G-SIBs’ pants. Perhaps Bank of China would scream… “Take me out, I don’t belong here”

No friends let me assure you that if I was a Global Systemic Important Bank, and that the price for being The Most Systemic Important Global Bank in the world, would be to have an additional 1% or risk-weighted assets in equity… I would gladly say… “Sure, bring it on!”

But the saddest part of the story is, sine qua nom, that the more regulators insist on the risk-weighing of assets the less access to bank credit will those who most need it and who we most want to have access to it, namely “The Risky”, like medium and small businesses, entrepreneurs and start-ups.

Poor "systemic irrelevant financial institutions"

So now except for 29 banks all the rest have de-facto been qualified as systemic irrelevant financial institutions. Is this going to make the lucky few less too-big-to-fail? Against a requirement of only 1 to 2.5 percent in additional equity, to be paid in comfortable installments? They've got to be kidding! 

Please, someone, save us from these regulators who keep digging us deeper and deeper in the hole where they've placed us.

Basel bank regulations are un-American, un-European and un-Western World

I do indeed think that current regulations are un-American, but I guess my reasons are not exactly those of Jamie Dimon.

Yes! It is un-American, because by allowing banks to leverage more their capital when earning the risk-adjusted-interest-rate from those perceived as “not-risky” than when earning the same rate from those perceived as “risky”, Basel regulations have introduced a silly and unproductive risk-adverseness that is not compatible with a “ the land of the brave”

Yes! It is un-American, because allowing banks to leverage immensely more their capital when lending to the government than when lending to their small businesses and entrepreneurs, is stealth communism, absolutely not compatible with “the home of the brave”

Yes! It is becoming even more un-American, because allowing some banks to be named Systemically Important Financial Institutions, SIFIs, against a token additional 2.5 percent equity paid over many years, and thereby awarding them a “Too-big-to-fail” franchise, and relegating de facto all other banks to the group of Systemically Un-Important Institutions, SUFIs, is, or should be, an un-American discrimination

PS. Here´s a video that explains a small part of the craziness of our bank regulations, in an apolitical red and blue! http://bit.ly/mQIHoi

All systemic unimportant and irrelevant financial institutions need to fight back... or they’re toast!

These days some lucky banks, by paying with a little of capital increase spread out over many years, will be denominated by the Basel Committee as Globally Systemic Important Financial Institutions G-SIFIs. 

At that moment all other banks become de-facto Globally Systemic Unimportant Financial Institutions, in other words almost declared as irrelevant. 

If the G-SUFI’s do not fight back or protest they’re toast! Our dear George Bailey would not have stood a chance against a Basel Committee. Did we really authorize the bank regulators to do that?

Crazy bank regulations explained in apolitical red and blue!

And what about Systemically Un-Important Financial Institutions?

Anyone thinking about how to reign or prepare for what could happen with Systemically Important Financial Institutions, should put on your hats of bankers of Systemically Un-Important Financial Institutions, and think about what you need in order to be able to compete so as to survive, as an independent and not as a satellite.

For instance Daniel K. Tarullo has not yet done so, and though he is probably not aware of it he is on that dangerous route that leads to awarding some behemoths a “Too-big-to fail” franchise.

Do not even think of selling “Too-big-to-fail” franchises, much less for a meager 3 percent of additional bank equity.

It would seem like some regulators want to sell “Too-big-to-fail” franchises to Systemically Important Financial Institutions (SIFIs/G-SIFIs), and even for a mere 3 percent in additional capital. Do not even think of it! 

Not only will 3 percent of additional bank capital end up being almost meaningless in the case of a systemic explosion or implosion of these huge banks, but it is also probable that precisely those Too-big-to-fail banks that we least should want to be too big to fail, will be those most likely to exploit the franchise for all it is worth, in order to compensate the additional equity required, in the ways we would least like to see these franchises exploited. 

Of course regulators will argue these franchises will be the subject of special supervision. Who are they fooling? Is it not hard enough for them to supervise these behemoths without labeling them as the most likely candidates for special support?