A TALE OF TWO TREATIES
May 10th, 2012 by Conor McCabe
There are two treaties being discussed at the moment and as an exercise in the nature of power in the EU it’s worthwhile comparing the hand-wringing over Basel III with the Blitzkrieg approach of the Austerity Treaty advocates. One, of course, involves the interests of banks, the other the interests of citizens. No prizes for guessing who’s winning that battle…
http://www.businessweek.com/ap/2012-04/D9UFBQM80.htm
For more on Basel III, click here - http://www.bis.org/bcbs/basel3.htm
One of the core proposals of Basel III is the shoring-up of the capital base of banks ‘just in case’ there’s another banking crisis.
Last month the Financial Times ran a story on the move by major European banks to offer investors the chance to sell or swap €100 billion of notes:
In the past six months, lenders including BNP Paribas, Commerzbank, Royal Bank of Scotland and Unicredit have offered holders of a range of debt instruments (from covered bonds to so-called hybrid debt*) the chance to sell or swap those notes at a premium to market prices.
The activity is part of a reorganisation of banks’ balance sheets that enables them to convert debt into higher-quality core tier one capital, rather than embark on a round of dilutive capital raisings…
One recent exercise by Credit Suisse focused on retiring old debt and replacing it with new debt instruments well in advance of the 2019 deadline for lenders to comply with Basel III banking regulations.” (”Europe’s banks launch debt offers to boost capital,” Financial Times, 11 April 2012, p.33)
Repackaging old debt and calling it clean. This is the way that Europe’s banks are meeting their obligations to provide a secure capital base for future credit flow problems. And they don’t even have to get this finished and fully in place until 2019 - which is grand of course, as long as the next six years are the quietest, most secure and most financially stable years Europe has ever known…
*Hybrid debt was once described by Satyajit Das as ‘a new old way to lose money’ - see here.
