#output floor

3 10, 2023

DAILY100323

2023-10-03T16:38:58-04:00October 3rd, 2023|2- Daily Briefing|

Hsu Notes Benefits of International Data Hub, Warns of Nonbank Risks

In remarks today, Acting Comptroller Hsu focused on the benefits of the BIS International Data Hub, noting for example that it provides national authorities with a horizontal view of key risks affecting the global financial system difficult to obtain elsewhere.

Basel Sees End-Game in Sight, US Off Late List

Finally taking the U.S. off the tardy list, the Basel Committee today updated its Basel III implementation dashboard, finding that as of Q3 2023 the US, along with the EU, UK, China, Switzerland, South Africa, and Hong Kong are now working to adopt revisions to the credit valuation adjustment and operational risk frameworks, the standardized approach for credit risk, the minimum requirements for market risk, and the output floor – i.e., Basel’s end-game.

Daily100323.pdf

31 07, 2023

M073123

2023-07-31T10:40:52-04:00July 31st, 2023|6- Client Memo|

Two Tenets of the Capital Proposal That Make No Sense No Matter How Much One Might Want to Love The Rest of It

In the wake of the 1,089-page capital proposal, debate is waging on well-trod battlegrounds such as whether the new approach will dry up credit and thus stifle growth.  I’ve my own view on this, but my initial read of the proposal points to a still more fundamental issue:  some of it makes absolutely no sense even if one agrees with the agencies’ goals.  Here, I lay out two bedrock assumptions that contradict the rule’s express intent and will have adverse unintended consequences to boot.  God knows what lurks in the details.

M073123.pdf

31 07, 2023

Karen Petrou: Two Tenets of the Capital Proposal That Make No Sense No Matter How Much One Might Want to Love The Rest of It

2023-07-31T10:40:41-04:00July 31st, 2023|The Vault|

In the wake of the 1,089-page capital proposal, debate is waging on well-trod battlegrounds such as whether the new approach will dry up credit and thus stifle growth.  I’ve my own view on this, but my initial read of the proposal points to a still more fundamental issue:  some of it makes absolutely no sense even if one agrees with the agencies’ goals.  Here, I lay out two bedrock assumptions that contradict the rule’s express intent and will have adverse unintended consequences to boot.  God knows what lurks in the details.

The first “say what” in the sweeping rules results from the new “higher-of” construct.  Credit and operational -risk models are entirely gone and market-risk models are largely eviscerated.  Instead, big banks must hold the higher of the old, “general” standardized approach (SA) or the new, “expanded” SA.  Each of these requirements is set by the agencies – models mostly never allowed.  Further, a new “output floor” – different from Basel’s approach to this model’s constraint – is also mandated as yet another safety net preventing anyone gaining any advantage from any possible regulatory-capital arbitrage.

Why then not just demand that big banks use a standardized weighting the agencies think suffices?  Must banks be put through the burden of calculating two ratios when they have no ability to arbitrage requisite capital weights?  Do the agencies not even trust themselves to set capital standards that are now sometimes higher, sometimes lower as God gives them to know probability of default …

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