Banks compliance to Basel rules in the eurozone

As you already might know, I applied to work within Finance Watch, an EU and Brussel’s based NGO dealing with financial regulation., to insure that the financial industry is serving society and real economy rather than itself. During the interview Charlotte Geiger, in charge of communication, told me that the actual average leverage for EU banks was approximately 1/22. I already posted something to extrapolate whether or not this level of leverage was respecting the so-called “Cook ratio – 8/100” introduced in 1988 by the Basel committee and the Bank of International settlements. The calculation to do so is pretty simple : 100 divided by 22 is equal to 4,54. So to figure out the level of leverage out of 100, you just need to multiply 1 by 4,54. Indeed 4,54 is very far away from the Cook Ratio introduced by Basel 1 rules in 1988. How is that possible ? I don’t know.

Comme vous le savez peut être déjà, j’ai candidaté pour travailler chez Finance Watch, une ONG bruxelloise promouvant la réglementation bancaire et financière afin de s’assurer que le secteur financier sert la société et l’économie réelle plutôt que lui même. Durant l’entretien, Charlotte Geiger, en charge de la communication de l’ONG, m’expliqua que l’actuel niveau de “levier” moyen pour les banques européennes était de l’ordre de 1/22. J’ai déjà publié quelque chose pour expliquer comment calculer si ce niveau de recours au levier respecte ou non le fameux Ratio Cook de 8% et qui date des accords Bâle 1 et de 1988. Le calcul pour ce faire est particulièrement simple : 100 divisé par 22 est égal à 4,54. Donc pour trouver le niveau de levier rapporté à 100, il suffit de multiplier 1 par 4,54. En effet 4,54 est largement en dessous du ratio Cook. Comment cela est-il possible alors que nous en sommes à Bâle 3 ? Je n’en sais rien.

In Tuesday’s Financial times, there was a very interesting article about regulation and leverage in EU banks and its supposed compliance with Basel 3. Given the article, EU banks are not at all complying with Basel rules.

– I can’t help thinking about what I heard from DSK in his first english-speaking interview in CNN a few months ago where he reported explicitly that european banking system was “sick” compared to US banks.

– I also think about the interview of a former bank manager from Rotschild and now member of Terra Nova think tank about the fact the EU banks were much more  important compared to GDP of EU member states than US banks. He added that, in order to bail out one of those, in the US, it might be possible to do so with just a few additionnal percentage of GDP debt. The same is not possible within the eurozone.

Leave a Reply