The German banking association warns against the new capital requirements for financial institutions under the Basel III regulations (European Capital Requirements Directive) that is supposed to take effect on January 1th 2011. According to the German banks the new rules may result in them cutting lending by £1 trillion.
“Have you any idea of how much there is to do? Do you ever think of that? Of course not, you’re all too busy sticking your noses into every corner, poking around for things to complain about, aren’t you? Well let me tell you something – this is exactly how Nazi Germany started. A lot of layabouts with nothing better to do than to cause trouble.”
Basil Fawlty (John Cleese)
Like the hyperactive hotel owner, Basil Fawlty, in the famous BBC sitcom “Fawlty Towers,” European regulators are desperately trying to keep their financial house in order. It ought to be an easy task, if it wasn’t for those damn house guests! Especially the Germans…
The Basel III agreement is accepted by all the other members of the EU committee, except for the Germans.
The German banking association says that the passing of Basel III would force them to raise over €100 billion in new capital, according to Frankfurter Allgemeine.
The most crucial rule is the new leverage ratio, which limits the amount of credit to 33 times the bank’s core capital.
At the moment German banks are financed by all kinds of strange hybrid types of capital, which are technically counted as equity for the purpose of regulation, but which are, in reality, more like bonds.
Will Force A Recession
The German banking association says if the banks will need to raise the €36 billion by January to meet the new requirements.
If they fail, they would have to cut lending by €1000 billion, which would effectively constitute a credit crunch, and would force a recession.
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The Germans wants the new rules to be implemented, not within six to eight years as proposed by the Basel committee, but in 10 to 12 years.
This is – at least partly – the reason the German government still expresses reservations about the Basel III agreement.
This just goes to show where the “dog is buried” when it comes to Europe’s financial institutions.
See also: German Banks With More Than 200 Billion Euro In Faul Credits
An Invisible Credit Crunch
The German banking association warns of another credit crunch.
Well, I think it’s a bit too late for that.
Monday, the ECB announced one sole bank was allotted $60 million via its FED-swap facilitated liquidity providing operation.
In a comparable operation last week, the ECB announced that just one, (probably the same bank), had requested $40 million in a dollar-denominated funding from the ECB.
The point is not that just one bank requested such a paltry sum of capital to last it for another 168 hours.
But this is a strong indication that the funding situation in Europe is so bad that a bank is unable to get a relatively small token of $40 million in the interbank market or via traditional means, and is forced to beg for money at the lender of last resort – the European Central Bank.
Furthermore, the fixed-rate on the operation came in at 1.19% – nearly 4 times the rate allegedly charged for 3 Month LIBOR, which yesterday came in at around 0.30%.
(Source: Zero Hedge)
Governments Need £80 Billion This Month
Another evidence of the ongoing recovery/credit crunch is the fact that European governments plans to raise another £80 billion in September, compared with £43 billion in August.
Padhraic Garvey, head of rates strategy for developed markets at ING Financial Markets, said: “We are heading into a critical period as the chances rise that a government may fail to raise the money it needs.
“Spain, Portugal and Ireland are the obvious ones to worry about. Are investors willing to stay long, or buy the debt of these countries? I’m still not seeing investors willing to buy into the periphery.”
Some strategists say the return of most investors from holidays this week could increase volatility in these markets because many have put decisions on their portfolios on hold during the summer.
With most investors back at their desks, some could start selling peripheral debt in the coming weeks, particularly as the outlook for the global economy has deteriorated. In spite of some better than expected data out of the US last week, worries about a double-dip recession have increased.
But other strategists insist governments will have little difficulty in funding themselves, even if they have to pay higher premiums or yields to attract investors. They say countries such as Portugal and Ireland have already raised most of the money they need this year.
Government bond yields of the peripheral countries, however, may come under further selling pressure.
The Fawlty Towers
The new Basel III regulations is supposed to be a “fire extinguisher” aimed at the evaporating confidence in the financial markets.
However, according to the Institutional Risk Analyst, the new rules might backfire – big time.
See also: Will Basel III Crush the Global Economy?
The German banking association are complaining about the overall capital requirements, but I seriously doubt that this is the only reason they’re trying to avoid them.
Not To Be Mentioned
Because there’s another little detail, not mentioned by any banker, called “Article 122a” that requires European credit institutions that invest in structured finance securities to know what they own.
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It also lays out explicit penalties if a European credit institution does not obtain sufficient data regarding an ABS to satisfy regulators that the buyer fully understands the security.
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Here’s a Q&A about Article 122a, provided by Richard Field of TYI LLC.
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Now – that’s really scary!
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Related by the Econotwist:
European Banks Hunting For EUR 1,65 Trillion
Morgan Stanley: Governments WILL Default
Brussels Tells Athens To Shut Up And Take The Pain
Greece About To Enter The Death Spiral
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Related Articles
- Banks await final rules on capital (telegraph.co.uk)
- German FinMin says will not block Basel III (reuters.com)
- Will Basel III really deliver? (blogs.reuters.com)
- German Banks May Need to Raise $135 Billion on Rules (businessweek.com)
- The Basel III jockeying continues (blogs.reuters.com)
- Basel vs Barclays (ftalphaville.ft.com)
- Bankers Gather to Fend Off Harsher Regulation (dealbook.blogs.nytimes.com)
- G20 delay on Basel III bank curbs (guardian.co.uk)
EU Minster Compare France With Nazi Germany; Receive Standing Ovations
The French government are under heavy pressure because of its decision to expel over 1000 Romans from the country. But now the French have had it; EU justice commissioner Viviane Reding indirectly compared the French actions with Nazi Germany‘s deportation of Jews during World War II, saying that “this is a situation I had thought Europe would not have to witness again after the Second World War.”
“This is not how you speak to a major power like France, which is the mother of human rights.”
Bernard Valero
Over 440 Roma camps have been dismantled in the past month and more than 1,000 Romanian and Bulgarian citizens sent back to their home countries as part of the massive crackdown on illegal immigration, ordered by President Nicolas Sarkozy at the end of July. The expulsion of gypsies from France have been met with with storm of protest from both EU politicians and human rights organizations.
“A plane ticket to one’s country of origin in the European Union is not a death train, and is not the gas chamber.”
This remark by EU justice commissioner Viviane Reding in a radio interview, yesterday, have really got the French out of their chairs and up on the barricades.
Viviane Reding
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Ms. Reding said she was “appalled” at the French policy. She called the developments a “disgrace” and said the commission will take legal action against Paris at the EU court in Luxembourg.
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All the political groups in the European Parliament have welcomed Viviane Reding’s intervention, except for the center-right European People’s Party, to which, awkwardly, both President Sarkozy and Ms. Reding are affiliated.
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The Mother Of Human Rights
Focusing in on the commissioner’s remark, Tuesday, the French politicians today says that Ms Reding’s “unseemly” remarks in effect compare France to the Nazi regime.
Bernard Valero
According to the EUobserver, spokesman for the French foreign ministry Bernard Valero says that Paris is “astonished” by Ms Reding’s statement.
“We don’t think that this kind of declaration will help improve the predicament of the Roma, who are at the heart of our concerns,” Valero says.
“This is not how you speak to a major power like France, which is the mother of human rights.”
Head of Mr. Sarkozy’s UMP party in the National Assembly, Jean-Francois Cope, also dismiss Ms Reding’s comments as “baseless accusations” and suggested the EU commission had “ulterior motives.”
Voluntary Deportations
French authorities deported over 200 Roma to Romania the same day that Ms. Reding spoke out on the commission podium. Some 230 explees, including children, landed in Bucharest on Tuesday in what France is calling “voluntary deportations” in defiance of human rights groups.
Most of the Roma interviewed by journalists upon arrival in Romania said they would return to France, because the economic situation is better, even if they get deported again.
Romanian local authorities are speed-tracking procedures for social assistance, but the fresh aid is unlikely to keep them in the country.
Xenophobic, Discriminatory And Nationalistic
Spokeswoman for the President of the European Parliament, Jerzy Buzek, says to the EUobserver that “the commission is the guardian of the EU treaties. If it finds that France broke the law, it should proceed accordingly.”
The head of the Liberal group, Guy Verhofstadt, says in a statement: “Europe is finally proving its worth by not ignoring xenophobic, discriminatory, and nationalist policies perpetrated by member states. We welcome commissioner Reding’s action to bring fast-track infringement proceedings against France.”
Socialist leader Martin Schulz also welcomed the Reding speech, but says the reaction came “too late for hundreds of Roman people,” already deported by the French government.
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Human Rights Groups Flabbergasted
Human rights groups have rallied behind the commission.
“This has never happened before. I mean, there were 10,000 Roma deported by various member states last year and the commission didn’t say anything,” Nele Meyer, the group’s Roman expert says.
“We are absolutely surprised and delighted that Reding took such a strong line.”
“Ms. Reding’s forceful statement comes not a moment too soon,” Benjamin Ward from Human Rights Watch says in a statement. “The French government needs to heed the calls from Brussels and halt this abusive policy.”
The European Network Against Racism urged the commission to take legal action not only against France “but also against all other member states putting in place similar policies infringing minority rights.”
The French parliament also on Tuesday pressed ahead with another controversial policy – the total ban of burqas and other full-body robes worn by Muslim women in public, even by visitors who pass through France.
Offenders face a maximum fine of €150 and could be asked to attend courses on what the government calls “republican values.”
Individuals who encourage others to ignore the ban would face tougher penalties: up to one year in prison and a maximum fine of €30,000.
On Econotwist’s account:
Thank you, Ms. Reding! This kind of courage is rarely seen in any political environment today, and is exactly what the world needs at the moment. Wishing you the best of luck.
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Le Monde File Lawsuit Against President Sarkozy For Spying
Sarkozy Takes Austerity To New Hights
EU’s Administrative Costs Set To Rise 4,4% In 2011
People’s Confidence In The EU Drops To Record Low
The Political Impact Of The Great Recession
A European Revolution by December?
EU Member States Disagree On Debt Figures
EU Officials Fears Second Depression And War
Is World War III Approaching?
A Report To Make You Go “Hmmm…”
The Failure Of A Culture
A Lament for Europe
Global Economy On Fast Track To Disaster
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Tagged as European Commission, European Union, France, Health and Environment, International Econnomic Politics, Law, Nazi Germany, Romania, Views, commentaries and opinions, Viviane Reding, World War II