WHAT U.S. BANKING AUTHORITIES NEVER LEARNED AFTER THE CRISIS & DESMOND LACHMAN ON WHY I.M.F. REMAINS ESSENTIAL EVEN FOR AMERICA
The leverage ratio is not the problem
Paul H. Kupiec | AEI Economics Working Paper Series In his most recent working paper, Paul Kupiec discusses recent proposals that have recommended important modifications to the supplemental leverage ratio (SLR), the ratio of an institution’s Tier 1 capital to its total leverage exposure. Introduced by the Basel Committee in 2010, SLR seeks to drive banks to examine how they hold their derivatives exposure. Kupiec argues that rather than change the construction of SLR, a much better solution for promoting liquidity is to significantly raise the minimum SLR to minimize the debt-overhang problem. Additionally, Kupiec argues in favor of revising the deposit insurance pricing system so that premiums are much closer to fair market prices for insurance.
The major flaw in big banks’ argument against the leverage ratio
Paul H. Kupiec | American Banker Paul Kupiec identifies the major gap in big banks’ argument against the leverage ratio. He argues that excessive leverage was a primary cause of the financial crisis, and yet big banks and even some government officials appear eager to relax rules that limit leverage at the largest US financial institutions. Kupiec believes that banks’ argument for why such reform is necessary doesn’t hold water -- the solution is not to replace the supplemental leverage ratio.
asel III: Some costs will outweigh the benefits
Paul H. Kupiec | American Enterprise Institute Paul Kupiec discusses the drawbacks of Basel III -- a comprehensive set of reform measures aimed at strengthening the regulation, supervision, and risk management of the banking sector. He argues that community banks will face large costs under Basel III and that any possible benefits of the proposal are unproven. He fears that Basel III will impose significant costs on the industry and that its governance lacks transparency.
THE CRISIS OF CHINESE DEBT, PERMANENT MISALLOCATION & DISLOCATION OF RESOURCES; BEIJING JAILS THE FUTURE, IS THIS CHINESE LEADERSHIP?
China debt warning: The IMF’s latest annual health check on Asia’s biggest economy is blunt, sweeping and sure to ruin Xi Jinping’s month as the Chinese president tries to maintain a veneer of omnipotence and stability, William Pesekwrites. The IMF’s worry is debt. It has seen this horror film before in neighboring Japan and the odds of a happier ending for China are negligible. “International experience suggests that China’s credit growth is on a dangerous trajectory, with increasing risks of a disruptive adjustment and/or a marked growth slowdown,” the IMF said. When viewed through the lenses of past scenarios in Japan, Southeast Asia, and South Korea, the picture looks far from hopeful. READ THE STORY HERE
China loses steam: Industrial output, investment, retail sales and trade all grew less than expected last month, after the world’s second-largest economy put in a surprisingly strong showing in the first half, adding fuel to a global recovery, Elias Glenn and Ryan Woo write. Lending costs rose and the gravity-defying property market cooled, though activity levels generally remained solid, propped up by a year-long construction spree. Economists do not expect a hard landing, with the government keen to ensure stability ahead of a once-in-five-years Communist Party leadership reshuffle in the autumn. READ THE STORY HERE
China deleveraging trend: Highly leveraged large-caps are massively outperforming the market composite index, David P Goldman writes. As investors show confidence in China’s approach to gradual deleveraging, debt-burdened state-owned enterprises have turned in torrid returns on the Chinese stock market during the past several weeks. READ THE STORY HERE