Bank capital-requirement on sovereign risks.

Rating AAA to AA- = Cap-Req of 0%
Rating A+ to A- = Cap-Req of 1.6%
Rating BBB+ to BBB- = Cap-Req of 4%
Rating BB+ to BB- = Cap-Req of 8%
Rating Under B- = Cap-Req of 12%
Unrated = Cap-Req of 8%

Our financial regulators went mad! Imagine if the banker gave some surely modest loans to a BB+ rated sovereign at most certainly a very interest rate spread then it was required to hold 8 percent in equity but, if it was a copious loan to an AA- sovereign on which the bank was making an extremely low spread, it is allowed to do that with zero bank equity.

If we do not free ourselves completely from this unfortunate regulatory mindset we are doomed.

For a starter the German Finance Minister should be asking his own colleagues… how on earth did you allow our German Banks lend to Greece with no capital at all?

You don´t “have to”. But the question is if you loose more money yourself then it would cost to help the neighbour out.

And – one of the Banks lending Money is the Hypo Real Estate (10 bn) wich is (after a “rescue”) owned by the state. An who rescued the Bank? Jörg Asmussen. There will be a bad bank for the HRE but it is not known if the 10bn für Greece and the 21bn for Spain are included.
And this is not the only Bank wich would cause (monetary and political) trouble for the gouvernment in case of not helping Greece.

ALOA

“I am confused: When your next door neighbor can’t pay his bills, does that mean you have to pay his bills for him instead of letting him dig himself out of his own situation?”

March 13, 2010 – Toronto Star – excerpts

Germany seeks to oust debt-flouting EU states

Finance minister’s idea rebuked as `radical step’

“While saying his proposals were not specifically geared to Greece, Schaeuble offered backing for an EU emergency lending mechanism that would reduce the risk of defaults. He opposed euro members appealing to the IMF.

“Strict conditions and a prohibitive price tag must be attached so that aid is only drawn in the case of emergencies that present a threat to the financial stability of the whole euro area,” Schaeuble wrote.

Countries that repeatedly breach the deficit limit of 3 per cent of gross domestic product should be denied EU “cohesion funds” for economic development and barred from voting on euro-region policies, Schaeuble said.”

http://tinyurl.com/y9u2oe3

If we did not have a crisis before we most definitely must have one now as the room for middle-of the road adjustments seems to have disappeared. The Euro will either shoot up like a DM, or dissolve like an Argentinean peso. What will the markets believe?

Whatever, if I was a Greek living in Greece I would probably start packing!

“The differences between Goldman Sachs & the mafia: GS has a better legal-regulatory expertise; but the mafia understands public opinion.”

http://twitter.com/nntaleb/

All these assumptions that just because the Germans share their currency with the Greeks means that they must pay the Greeks’ bills strikes me as nonsense. Certain institutions in charge of economic management may be very embarrassed by the naked unfolding of a sovereign default, but it must be allowed to happen when the sovereign nation doesn’t pay its bills.

If that results in losses for German banks and bankers who loaned large proportions of their capital carelessly to Greek debtors, then that is the right outcome. In the future, German bankers will be more careful. If you don’t accept this outcome, then you are simply saying that sovereign lending should be unmanaged and unlimited.

Regards
ALOA

I suppose it is thinkable that a country now presently
on the Euro could reinstate some kind of original
currency and hope that Gresham’s law would work in
its favor(e.g. that the new home currency is _worse_
than the Euro!!!!)

Also, while I’m still seized by a fit of practicality,
why would taking Greece off the Euro — even supposing
it to be possible — help the problems of Greek
indebtedness?

Best wishes to all,

Alan McConnell in Silver Spring MD

Remember the Asian financial crises, Ruble crises, LTCM etc. all these events featured all the usual suspects from those four centers of global finance. And, wasn’t the whole CDO game at AIG built around regulatory arbitrage for the European banks who are behemoths of global finance….but now that Greece and the Euro is on the menu…HOUSTON WE’VE GOT A PROBLEM!!!! give me a break…

I think Observer hit it on the head

Do you think that would work? Would doing so change the business practices of huge banking firms like Goldman Sachs? And how would Germany and the rest of the Eurozone get the U.S. on board?