Tag Archives: banking

A top U.S. banking regulator called Deutsche Bank’s capital levels “horrible” and said it is the worst on a list of global banks based on one measurement of leverage ratios.

Well this is a great way to end your week

“It’s horrible, I mean they’re horribly undercapitalized,” said Federal Deposit Insurance Corp Vice Chairman Thomas Hoenig in an interview. “They have no margin of error.”

Hoenig, who is second-in-command at the regulator, said global capital rules, known as the Basel III accord, allow lenders to appear well-capitalized when they are not. That is because the rules allow the banks to use complicated measurements of how risky their loans are to determine the capital they must hold, he said.

But using a tougher leverage ratio measurement – which compares a bank’s shareholder equity to its total assets without using risk-weightings – the picture for banks such as Deutsche Bank is very different, he said.

Of course the bank says, “Nothing to see here.  Move along”

“To say that we are undercapitalized is inaccurate because if you look at the Basel framework, we’re now one of the best capitalized banks in the world after our capital raise,” Deutsche Bank’s Chief Financial Officer Stefan Krause told Reuters in an interview, when asked about Hoenig’s comments.

“To suggest that leverage puts us in a position to be a risk to the system is incorrect,” Krause said, calling the gauge a “misleading measure” when used on its own.

I’ll let my German readers decide if you need to excuse yourself and make a dash to the nearest ATM

Banking industry rebounding?

17 of 18 banks pass the federal stress test.  Which is good if all of the dire predictions of the budget cuts come true.

US banks have enough capital to withstand a severe economic downturn, the Federal Reserve has said, after announcing that 17 out of 18 major banks passed its annual stress tests.

Government-controlled Ally Financial, the rescued former finance arm of General Motors, was the only bank to fail the test of capital strength.

Wall Street banks Morgan Stanley, at 5.7%, and Goldman Sachs, at 5.8%, were the next two lowest.

The tests have happened since 2009.

“The nation’s largest bank holding companies have continued to improve their ability to withstand an extremely adverse hypothetical economic scenario and are collectively in a much stronger capital position than before the financial crisis,” the US central bank said in a statement.

Under the tests’ most severe scenario, unemployment peaks at 12.1%, share prices drop more than 50%, house prices fall more than 20%, and the largest trading firms suffer a sharp market shock.

“Under this scenario, projected losses at the 18 bank holding companies would total $462bn (£308bn) during the nine quarters of the hypothetical stress scenario,” the Federal Reserve said.

How Sweden Solved it’s Banking Crisis

From the New York Times

Financial deregulation in the 1980s fed a frenzy of real estate lending by Sweden’s banks, which did not worry enough about whether the value of their collateral might evaporate in tougher times.

Property prices imploded. The bubble deflated fast in 1991 and 1992. A vain effort to defend Sweden’s currency, the krona, caused overnight interest rates to spike at one point to 500 percent. The Swedish economy contracted for two consecutive years after a long expansion, and unemployment, at 3 percent in 1990, quadrupled in three years.

After a series of bank failures and ad hoc solutions, the moment of truth arrived in September 1992, when the government of Prime Minister Carl Bildt decided it was time to clear the decks.

Standing shoulder-to-shoulder with the opposition center-left, Mr. Bildt’s conservative government announced that the Swedish state would guarantee all bank deposits and creditors of the nation’s 114 banks. Sweden formed a new agency to supervise institutions that needed recapitalization, and another that sold off the assets, mainly real estate, that the banks held as collateral.

Sweden told its banks to write down their losses promptly before coming to the state for recapitalization. Facing its own problem later in the decade, Japan made the mistake of dragging this process out, delaying a solution for years.

Then came the imperative to bleed shareholders first. Mr. Lundgren recalls a conversation with Peter Wallenberg, at the time chairman of SEB, Sweden’s largest bank. Mr. Wallenberg, the scion of the country’s most famous family and steward of large chunks of its economy, heard that there would be no sacred cows.

The Wallenbergs turned around and arranged a recapitalization on their own, obviating the need for a bailout. SEB turned a profit the following year, 1993.

“For every krona we put into the bank, we wanted the same influence,” Mr. Lundgren said. “That ensured that we did not have to go into certain banks at all.”