The $8.6 trillion bank tweak that risks sparking the next financial crisis

Some of this means that banks in the world have an extra, easy -to -calculation buffer above the framework of other risk -related capital requirements.

However, America’s largest banks say that raw calculation prevents US treasures in stress times because it comes at a very high price.

JP Morgan boss Jamie Dimon warned that this blunt instrument means that US treasures are more risky than reality.

“These rules effectively determine that banks act as an intermediary in financial markets – and this would be painful at the wrong time: when the markets are variable,” he wrote to the shareholders.

Change Scope

US Treasury Secretary Scott Bessent forces it for change and claimed that changing treasures could reduce borrowing costs and help the world’s largest economy can serve the debt mountain. More importantly, it can help support US bonds at a time when foreign investors are increasingly lost faith.

Ken Rogoff, the former chief economist of the International Monetary Fund, acknowledges that it is the scope of change.

“It is very difficult to give a clear justification for SLR, in fact it is an extremely rude way to stop the excessive grounding of banks and has led to all kinds of deterioration in the market, because large global banks can no longer perform simple arbitrage functions as before.”

Jerome Powell, the federal reserve chief who is currently fighting with Trump on interest rates, is singing from the same divine page with the president, and in the last decade, considering the growth in the safe assets in bank balance sheets in the last decade, he describes the rule as “prudent” to rethink.

And so it starts. In June, the FED will move away from a rough approach, and instead of connecting the amount of capital banks, the rule changes should be put aside how important it is for the global financial system.

The FED also left the door open to greater changes that would completely exclude low -risk assets such as treasures and central bank deposits, as in the case of pandemic, and invited feedback to whether it could be made as “additional changes”.

As it is, changes will increase extra $ 5.5 trillion ($ 8.6 trillion) in bank balance sheets. The FED estimated that the capital requirements of the largest banks in deposit weapons will decrease by an average of 27 percent.

However, the movement of changing SLR and returning to pre -crisis rules is highly controversial for those who live during the last financial melting.

Sheila Bair, who operates the Federal Deposit Insurance Company (FDIC), which insures protectors against losses in case of a bank failure, warns that such a movement creates a problem for the future.

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As a result, the collapse of the Silicon Valley Bank in the United States (SVB) and the Fire Series of the HSBC, a subsidiary of the UK in 2023, were based on the purchase of SVB US treasures.

SVB protected a large part of deposit holders in treasures, but as the interest rates increased in the months until the collapse, the value of these treasures fell. The crisis following Liz Truss’s mini budget was a crisis caused by turmoil in the gilding market.

“Such a big decrease, [major] Bank failure exposes the economy to credit deductions and exposes the FDIC and Banking system to significant losses, Ba says Bair.

“In the 2008 financial crisis, I managed the FDIC and remembered how the insured banks were a source of power for holding companies with higher capital requirements.

“Somehow this free capital … The idea that it will return to insured banks in a crisis is not actually based on.”

The only person who expresses the concern is not Bair. Fed Governor Michael Barr, who served as the best bank regulator of the Central Bank before resigning against the pressure of the Trump administration, warned that the Central Bank’s proposals would “significantly increase the risk of a large bank failure.

Bair’s great fear is that money does not return to boring bonds, but that shareholders do not give their pockets or more exotic investments.

“Banks will probably find a way to distribute some of them to shareholders or to place them in market operations that are more risky and more vulnerable than insured banks.”

COVİD bumper

Those who eliminate the treasures from the calculations emphasize that banks are done without much fantasy during pandemic, as they put more money on bonds.

However, analysts at Morgan Stanley stressed that this was a function of a 21 percent jump in bank deposits, because workers had no place to spend cash during locks.

Morgan Stanley recently noted: “The increase in Covid in the deposit means that 2020-21 cannot be compared with today’s environment, because the deposit growth is warm at 1 percent per year. Banks, important driving forces of bank demand, important driving forces of banks, to support the customer relationships of the banks and to use the customer relationships of banks and to use the customer relationships of banks. It is the main driving forces of the values. ”

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Bair says the capital buffers were placed there for some reason. “If there is a future crisis, the organizers have the authority to provide urgent temporary relief, or he says.

“[If they] Reduce capital requirements now, they don’t know how banks can use it. It is better to maintain strong requirements in good times, so that the capital pillows will be there when bad times are hit. “

British regulators look closely at things among the concerns that Britain is moving towards a world where the dominant risk is completely removed from the leverage ratio. Although the UK has taken steps to remove the Central Bank reserves from their calculations, the authorities believe that the abolition of government bonds will be a very distant step.

Rogoff, now a Harvard professor, acknowledges that capital bumpers serve their purpose in crisis times.

“It is noteworthy how good it is to keep the banking system during the pandemic and later from the sharp increase in global interest rates. When the system hits the highest stress moments-especially when the economy is completely hit by non-box shocks, it does not suddenly look very crazy.”

Rules may seem benign, but bond sales are usually fast and severe. And he usually left the taxpayer to buy parts.

Telegraph, London

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