Monday, March 8, 2010

Basel II

Now supposedly, the regulators are going to force the banks to have more capital. Eventually. Oh my.

Goldman's take on it was in the WSJ:

Goldman analysts recently put the cat among the pigeons by estimating what the Basel II amendments could do to capital held against credit derivatives. In a highly theoretical scenario, Goldman said Morgan Stanley might need to hold $269 billion of regulatory capital against its credit derivatives book, BofA $108 billion and J.P. Morgan $21 billion. Applying an approximation of Goldman's analysis to itself suggests the firm would need about $100 billion against its credit derivatives.

At the very least, the Goldman's analysis is a reminder that large pockets of under-capitalization may still exist. Indeed, while banks may dispute specific scenarios, they readily recognize that the Basel II changes would lead to big increases in "risk-weighted assets." This would drive up the dollar amount of capital needed, because capital requirements are set as a percentage of risk-weighted assets.

1 comment:

Sam said...

A few interest rate/credit default swaps among friends should take care of that, just like AIG did for the European banks.