How to help a sick French bank look healthy

November 15, 2012 by · Leave a Comment
Filed under: Global News 

If these rules are what we are applying to all banks to show their healthy and risk, we are in big trouble.  We have a global debt problem (too much), in a financial system that requires growth (more debt/credit) to function problem.   Pointing out a single institution makes headlines but over all, any large bank is leveraged well beyond their capital base. 

We need to de-leverage the financial system.  This will relieve pressure on the bank’s balance-sheet so they can get back to there major societal purpose, lending to the public so we can innovate and create jobs and maintain income levels.   Overall, they are falling and have been for some time, outside time periods where we had asset bubbles that created artificial growth that was unsustainable.   Global governments will need to go through the same process.   If you ask, “how did we get here”, my answer would be that when we moved forward with the global bailout programs and not letting institutions fail or restructure with massive write-downs, this is the course we chose going forward.

My prediction is that we will limp along but eventually we will have a number of cascading failures when the math becomes to unsustainable and out of touch with reality.  Perception is reality until you do not have the ability to perceive fantasyland.   Good luck and prepare yourself.

Bloomberg – It’s no secret that the methods many banks use for calculating capital ratios are a farce, especially at large European lenders. Sometimes the numbers are so over- the-top, all you can really do is sit back and admire the chutzpah.

Consider France’s third-largest bank, Credit Agricole SA, which today reported a third-quarter loss of 2.85 billion euros ($3.62 billion), sending its stock down 6 percent.

The real entertainment can be found in its “core Tier 1 ratio,” which it said was 9.3 percent as of Sept. 30. The numerator in that calculation is regulatory capital. The denominator is what the regulators call “risk-weighted assets.” The smaller the denominator is, the bigger the capital ratio is.

Total assets at Credit Agricole were 1.9 trillion euros as of Sept. 30. Risk-weighted assets, however, were a mere 298.3 billion euros. In essence, we’re supposed to believe that 84 percent of Credit Agricole’s assets were riskless, even though that obviously is impossible.

Give blame where it’s due: The Basel Committee on Banking Supervision is the body that writes these rules, the objective of which is to make too-big-to-fail banks’ capital seem more robust than it really is.

Click here to Continue Reading

Speak Your Mind

Tell us what you're thinking...
and oh, if you want a pic to show with your comment, go get a gravatar!