I recently noted a published article about basic bank capital. It referred to Tier 1 banking capitalization standards created under what is called the Basel 3 agreement.
This is purported to make the global banking system safer; banks must have more equity capital, while they make safer loans.
Asian banks generally have a far greater amount of such funds, around 10%, as compared, for example, to about 6% in Britain and the U.S.. But other safety factors come into play. The type and grade of loans are also important.
Asian banks, learning from the past, do not have as much proprietary trading as American and British banks, If of any significance at this time. Then again, much of the talk about proprietary trading has been relatively blown out of proportion to its importance in each bank’s case.
The bugaboo with regard to the solid state of bank capital is more than just numbers, it has to do with mark-to-market accounting principles during panic-driven emergencies.
Bank and investment company net worth figures were daily being devalued to so-called “toxic” levels. They actually became fictitious, brought on by an illiquid market, where true fair value was impossible to determine.
I feel that was instrumental in bringing on the financial panic and financial meltdown that still affects the global economy.
No comments:
Post a Comment