There is a new alert out for banks and this time, it’s coming from a regulating agency worried of their capacity to weather an eventual next crisis. The alert was sounded by the FSB (Financial Stability Board), the G20’s organism in charge of financial regulation. The Board focuses on the most important global banks, the “too big to fail” ones or, in other words, those the States would have to bail-out in case of difficulties, given the risk they represent for the economy as a whole.
The FSB points to 30 large banks that could bring about systemic risks to the world economy, should they go bankrupt. Among those, HSBC, JP Morgan, Deutsche Bank, BNP Paribas and Agricultural Bank of China. It suggests these banks hold the equivalent of 16-20% of their assets, adjusted for risk, as reserves.
Two things are worthy of note: First, this requirement for capital largely surpasses Basel III’s own requirements, which means that the FSB sees no credibility with the main organism in charge of monitoring the solidity of banks worldwide. Secondly, the FSB sees no value at all with the recent ECB’s stress tests just performed with European banks that gave high marks to all the large euro zone banks. True enough, those stress tests left systemic risks alone and only gave a red thumb to second-rate banks in Greece, Italy and Portugal. If the FSB considers that Basel III and the ECB are not doing their job, will we have to regulate the regulators? It seems so, doesn’t it?
The FSB came out with its conclusions just a few days before the Brisbane (Australia) G20 meeting of heads of State and government leaders. It hopes to have its principles adopted during the G20 Summit that will be held in Turkey in 2015 and sees 2019 as the target year for its application.
According to Scope, the rating agency, going with the FSB’s most severe hypothesis (20% capital requirement for reserves), BNP Paribas would be short 25.5 billion euros of capital requirement and the Spanish bank Santander would be short 17.6 billion. This should tell us a lot about the fragility of those banks.
The four main French banks are on this list (BNP Paribas, Crédit agricole, Société Générale and BPCE), and the response by the Fédération bancaire française (French Banking Federation) to this alert from the FSB is worth quoting: “The measures envisaged by the FSB are redundant, since measures already in place in Europe to reinforce the banks’ capacity of facing difficulties, notably the European guidelines regarding the prevention of banking crises and the creation of the pre-financed united European settlements funds” (Le Figaro, Nov.10 2014). Precisely, the “European guidelines regarding the prevention of banking crises” calls for, in case of a crisis, drawing on depositors’ accounts, as we’ve explained. Conclusion: there is no need for more capital requirements since we can draw from the depositors’ accounts! This should be very reassuring for all savers, be they French or European.
>> Click here to download for free the ebook "Economics detox chronicles" by Philippe Herlin