By Dimitris N. Chorafas (auth.)
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Extra info for Basel III, the Devil and Global Banking
The flash crash has shown how interdependent financial markets have become and, through them, also the global economy. It is only reasonable to expect that Basel III should not only reflect this market interdependency but also to regulate it. The activities of lobbyists Back in the Roosevelt years, the legislation that aroused the greatest negative reaction by embedded interests was the Public Utility Holding Company Act. ’28 Subsequently, it was revealed that the utilities behind this tempest had spent well over a million dollars in their fight against the bill.
6 Part and parcel of moral hazard is rescuing big banks that are at edge of the abyss. Such cases have multiplied because of the increased correlation among financial assets and liabilities, including corrosive ‘assets’ of highly volatile or nearly zero value. Crises derail the perpetual motion financial machine, and compromise the banks’ independence. Even worse is the fact such intervention is largely made necessary by greatly increasing the sovereign debt. ‘The perpetuum mobile will come to a standstill when the state creates money in excess,’ says Heinrich Steinmann, pointing to the cash generated by the sovereigns via their central bank.
Write-downs proliferated to such an extent that even the US government’s supposedly deep pockets could not provide enough to fill the gap, and politicians twisted the arm of the Financial Accounting Standards Board (FASB) to abandon marking-to-market. At the time of writing, nobody really has a clear idea on how to create a dependable approach to credit rating, let alone a global system able to judge credit risk. Regulators tend to encourage banks to use their own internal risk models alongside the independent agencies’ ratings, but these may be the problem rather than the solution, as few of these models are truly reliable.
Basel III, the Devil and Global Banking by Dimitris N. Chorafas (auth.)