tag:blogger.com,1999:blog-7366878066073177705.post4793922639123127301..comments2024-02-09T18:16:45.614+00:00Comments on The Psy-Fi Blog: Basel, Faulty?timarrhttp://www.blogger.com/profile/06254802085744425067noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-7366878066073177705.post-44762117973371373922010-01-18T10:40:05.472+00:002010-01-18T10:40:05.472+00:00Interesting post. Like Kayshap, Rajam & Stein ...Interesting post. Like Kayshap, Rajam & Stein I share their pessimism about getting balanced adaptive regulation although making explicit plans for what is effectively Catastrophe Insurance underwritten by Government makes sense. In my view Basel II was far too complex, over ambitious, took too long to implement and provided banks effectively with a running commentary during the consultation process. If you are to contain anti-social action it is hardly effective if you publish/debate in public the proposed defintions and possible consequences years in advance. Moreover the attempts at defining capital weightings for all/most asset classes encouraged gaming on an industrial scale. The authors don't really look into the debt/ equity raising decisions but do point out the so-called agency problems. These are no different for non-banks, over mighty CEOs, supine boards, lazy and indifferent shareholders. However there are some built-in behaviousr that have been around for years and should have been red flags. e.g. When UK building societies demutualised, they began to particpate in totally non-standard risks, the Halifax, later HBOS, led a major aircraft leasing deal-why? Equally smaller ex mutuals strayed into US housing via US RMBS and CDOs, what does a relatively small reagional bank whose business was historically based in Yorkshire know about the US housing market? How can it risk assess its particpation or should we not really state the obvious this was just blind yiled chasing. For years the IBs and major commercial banks have originated and distributed largely to what were unglamorously known to all as " stuffee" banks and investors. In short they lacked origination capacity and would buy up assets for yiled without a clue as to the real risk profile. This behaviour has been around at least 30 years, why did boards and institutional investors, let alone smarter retail ones not question this behaviour? This is simple enough stuff.Max Wnoreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-73130255252287917232010-01-16T20:48:21.085+00:002010-01-16T20:48:21.085+00:00Bank regulation is always doomed to failure becaus...Bank regulation is always doomed to failure because the cost to society of the ultimate penalty, failure of the banking system, is too high. Governments will always blink first.<br /><br />More useful is how to manage the conflict between agents and principals. In this case the agents are bank managers and prop traders who have every incentive to use the bank's balance sheet to the maximum for their own personal gain. <br />The principals are the bank's shareholders who want to maximise their returns, but not at the risk of blowing up the bank. <br /><br />The problem now is that shareholders have virtually no say in how their capital is used. Institutional shareholders and especially tracker funds are notable by their absence on the boards of these banks. <br /><br />These representatives of the shareholders should provide the bulk of the non-executive directors of the banks. It is their self-interest that is surely the best defence against the agents using the their capital dangerously.Rob Davieshttp://www.themunrofund.comnoreply@blogger.com