Regulators in US and Europe roll back Basel III reforms

 

Less than 15 months after the world’s most recent banking crisis, regulators in the US and Europe are already poised to rol back reforms aimed at reducing the risk of further financial disasters. 

It’s a serious mistake.

The problem is that executives prefer to employ as little equity and as much debt as possible, because this maximizes government subsidies and boosts measures of profitability in good times.

Equity levels rose significantly, peaking at about 7% of assets among the largest American banks — though this was still less than half what research and experience suggest would be needed to weather a severe crisis. 

Europe was a laggard, barely exceeding 5% of assets (according to the most comparable measure).

A race to the bottom won’t end well for anyone.

Bloomberg Editorial 5 June 2024

https://www.bloomberg.com/opinion/articles/2024-06-05/fragile-banks-won-t-make-us-europe-stronger

Post-2008 regulations may save us from a bank panic. The danger is every other financial institution

https://englundmacro.blogspot.com/2023/04/post-2008-regulations-may-save-us-from.html

Tip of Debt Iceberg

 ‘Shadow banks’ have grown rapidly and, like banks, are exposed to risk from higher interest rates

https://englundmacro.blogspot.com/2023/05/tip-of-debt-iceberg.html

Riksbanken vill att EU följer Basel III

https://englundmacro.blogspot.com/2021/09/riksbanken-vill-att-eu-foljer-basel-iii.html

Europe’s banks will have to raise up to €400bn of fresh capital or slash lending

https://englundmacro.blogspot.com/2019/11/europes-banks-will-have-to-raise-up-to.html