Tuesday, May 15, 2012

In reaching deal to boost bank capital requirements, EU finance ministers throw gasoline on the bonfire of EU economy

Bloomberg reports how the EU finance ministers have reach agreement on a plan to require banks to hold more capital.

The best thing that can be said for this agreement is it will have the impact of making the EU financial regulators' induced credit crunch look like a blip.  When this agreement kicks in, access to bank credit in the EU will disappear.


Because the banks are still sitting on a mountain of hidden losses.  Losses that the financial regulators allow the banks to hide under the policy of regulatory forbearance.

Losses that the banks cannot get rid of without reducing their book capital levels and making it harder to reach the new capital ratio targets.

As the banks have already demonstrated, given the ability to hide these losses the easiest way for them to hit higher capital ratio targets while still receiving their bonuses is to cut back lending.  The EU finance ministers' agreement with its higher capital requirements provides the impetus for the banks to cut back lending even more.

European Union finance ministers agreed on a plan to force banks to hold more capital in a deal that gives the U.K. full powers to implement its so-called Vickers banking agenda. 
U.K. Chancellor of the Exchequer George Osborne said at a meeting of EU finance ministers in Brussels he won assurances from other nations that the U.K. will be able to follow through on its banking agenda, which will force large retail banks to hold more capital than the minimum international standards. 
That broke a deadlock reached two weeks ago, when 16 hours of talks left ministers divided on whether countries would need to seek permission when imposing extra loss buffers. 
“We are happy to accept there is a political agreement,” Osborne said during a public debate. “There will still be technical changes that need to be discussed.” 
Governments and lawmakers in the 27-nation EU face a January deadline to implement bank rules agreed on by the Basel Committee on Banking Supervision in the wake of the 2008 collapse of Lehman Brothers Holdings Inc. The measures, known as Basel III, would more than triple the core capital that banks need to hold to 7 percent of their risk-weighted assets.

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