Global regulators are poised to set a new tiered regime of additional capital requirements for about 30 of the world's biggest banks, in the latest effort to ensure the next financial crisis can be contained.
The regulators plan to place each institution into a "bucket" carrying a particular surcharge based on bank size, global reach, structural complexity and whether other banks could absorb its business. Banks could move between categories as their size, structure and risk appetite change.
At least eight banks - three from the US and five from Europe - are being targeted for capital surcharges of 2.5 per cent of their assets, adjusted for risk, on top of the 'Basel III' minimum of 7 per cent set by global regulators last year. The list is an informal effort to forge a global compromise and has not been formally circulated.
If the ideas are adopted, Citigroup, JPMorgan, Bank of America, Deutsche Bank, HSBC, BNP Paribas, Royal Bank of Scotland and Barclays would have to maintain core tier one capital ratios of 9.5 per cent, according to three people briefed on the discussions.
Goldman Sachs, Morgan Stanley, UBS and Credit Suisse would be in the next category down, facing a surcharge of 2 per cent and total minimum ratio of 9 per cent.
Another 10 to 15 banks are likely to face surcharges ranging from 0.5 to 2 per cent as part of the effort to make "global systemically important financial institutions" more resilient. These banks are considered so big and important to the global economy that they would probably have to be rescued by taxpayers if they got into trouble.
As drafted, there is an "empty bucket" above the highest tier that would carry a surcharge of at least 3 per cent. It is intended to serve as an "important deterrent" to risky behavior.
People involved cautioned that the list remained fluid. Some countries have objected to an earlier formal proposal that would have imposed even higher surcharges.
Regulators are due to meet in Switzerland at the end of next week. Fierce lobbying is still going on and banks have been categorized using data that does not reflect some of their efforts to cut risk and shed assets. Banks that have shrunk dramatically - such as Citigroup and RBS - may shift downward.
Japanese and French negotiators are also fighting to keep Crédit Agricole, Société Générale, Mitsubishi UFJ, Mizuho and Sumitomo Mitsui out of the top categories, so their final positioning is unclear.
Regulators are still arguing about how much of the surcharge will have to be equity and to what extent contingent capital - bonds that convert to equity in a crisis - would be an acceptable substitute.
Study claiming the U.S. housing collapse is now worse than during the Great Depression warned Wednesday that the market likely will continue to fall for the rest of the year before going stagnant.
Paul Dales, senior U.S. economist for Capital Economics, predicted home prices would fall another 3 percent over the rest of 2011 before potentially hitting bottom.
"Even when that happens, I don't think we're going to see any significant or sustained rises," he told on Wednesday, predicting "a couple years of pretty much no recovery whatsoever."
The bleak prediction comes after he released a report estimating that since the collapse began from the pricing peak of 2006, prices have fallen 33 percent - more than the 31 percent dive recorded between the 1920s and 1930s.
The data, from Capital Economics, underscores the trouble the U.S. economy is having emerging from what is described as the worst recession since the Great Depression.
Dales' dismal estimates were compounded by the Housing Market Index released Wednesday by the National Association of Home Builders. The index measures builder sentiment down to a level of 13 on its 100-point scale. That's three points below the previous month and the lowest level since September 2010. Any reading below 50 indicates negative sentiment about the market.
With fewer homes being built, fewer jobs are available and less revenue is generated for local, state and federal governments. Each new home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the builders' trade group.
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On the bright side, the NAHB noted that a poll it took of 2,000 2012 voters found that housing is still
Dales said the collapse has eclipsed that of the Great Depression because the boom that preceded it was much bigger. Unlike during the 1920s, access to the housing market was far more open leading up to 2006.
"This boom was characterized by homeownership becoming the norm for pretty much anyone," Dales said, noting that the boom has effectively been thrown in reverse.
While the financial markets have partially bounced back since the 2008 Wall Street collapse and the economy as a whole has stopped shrinking, the employment picture is bleak and housing continues to suffer. The national jobless rate ticked up to 9.1 percent in May - that was after the Standard & Poor's/Case-Shiller index issued a report showing home prices in a dozen metropolitan regions hit their lowest level in March since the collapse began. Nationally, prices hit a new post-collapse low in the first quarter, and have returned to roughly 2002 levels.
David Blitzer, chairman of the Index Committee, declared at the time the numbers confirmed a "double-dip in home prices." He and other analysts suggested the U.S. housing market has not yet hit bottom.
More bad news emerged Wednesday, as a New York Federal Reserve survey showed manufacturing slowing in New York state, spooking traders on Wall Street.
Amid the troubling developments in housing, labor and elsewhere, the Obama administration has tried to push several new economic proposals, ranging from new training programs to tax relief.
President Obama is pleading for patience on the economy while at the same time urging the public to stay positive.
"The sky is not falling," the president said during a stop in North Carolina two days ago. Source:http://teaparty.org/article.php?id=893
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