Regulators Pushing for Banks to Have Their Own Money at Risk in Mortgages

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Editor’s Note: Right idea. If the commercial banks were actually lending their own money, if Wall Street was required to buy a piece of the crap they were selling, the situation could have been different. But under current proposals it would not have been THAT different, because the amount of “skin” in the game proposed by regulators is far too low. Wall Street can easily make up for their “investment” simply by maintaining the current structure where the bad loans produce such incredible profits.

Regulators need to take a close look at the money trail using several different types of mortgages as their base index and realize that Wall Street made far more money than anyone is currently aware. So far, the regulators are taking the financial statements of the banks at face value and allowing off-balance sheet transactions.

The off-shore, off balance sheet transactions are hiding the profits they made which are in the process of gradual repatriation of those profits under the guise of “trading profits.” They are doing this to mask the true profits they made, which could turn into a liability because what they did was illegal, immoral, unethical and laden with liability for common law and securities fraud.

By repatriating these profits slowly, their margins look lower, thus allowing them to fight the increase in reserve capital using the false financial reporting as a base. But they also are in the position of completely controlling their own future profits, as those are reported to the public. Having control, they can increase earnings at whatever rate they want and guarantee a higher stock price than they would otherwise be awarded by the market. This is stock manipulation at its “finest.”

Higher Reserves Proposed for ‘Too Big to Fail’ Banks

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After nearly two years of political jousting, a panel of global regulators said on Saturday that banks deemed too big to fail would have to set aside an additional cushion of capital reserves in what is the centerpiece of their efforts to avoid a repeat of the 2008 financial crisis.

The chief oversight group of the Basel Committee on Banking Supervision proposed that the world’s largest and most complex banks would need to hold a reserve of high-quality capital of between 1 and 2.5 percent of their assets to cope with any unforeseen losses. That would be on top of their proposed minimum capital levels for all banks, currently set at 7 percent of assets.

Regulators plan to impose the surcharge on a sliding scale, based on several factors including the bank’s size, complexity and the closeness of its ties to other large trading partners around the world.

And in what appears to be a nod to regulators pressing for even higher requirements, the committee proposed an additional surcharge on banks who grow larger or engage in risky activities that would “increase materially” the threat they pose to the financial system. The surcharge could raise the requirement to 3.5 percent of assets.

The process is only just beginning. The Basel committee will put out a more detailed proposal in late July, giving banks and policymakers a final chance to weigh in on the new rules before formally approving them. Then, regulators must begin the process of identifying these so-called “systemically important” global banks. The banks, meanwhile, will not have to fully comply with the new rules until January 2019.

The proposed capital requirements are perhaps the most important banking reform since the crisis erupted three years ago and are being followed closely in the world’s financial and political capitals. If banks are forced to hold bigger cushions of capital, they can more easily absorb financial shocks and avoid the need for taxpayer bailouts. But setting aside more capital means that banks also have less money available to lend out — a move that could dampen economic growth and potentially hinder an already anemic global recovery.

Amid aggressive lobbying by some of the largest banks for weaker capital requirements, international financial regulators have spent the last two years trying to strike the right balance. They also are trying to bridge different national standards, which might give countries with more favorable requirements a competitive advantage.

American regulators pushed for a higher surcharge and better loss-absorbing capital, while European regulators, especially those in Germany and France, preferred a lower surcharge and broader definition of capital.

In a statement Saturday, the panel of regulators said the new measures would create strong incentives for large banks to curb risky behavior that could endanger the financial system. “This will contribute to enhancing the resiliency of the banking system and help mitigate the wider spill-over risks,” said Nout Wellink, a central banker from the Netherlands who is chairman of the Basel Committee.

6 Responses

  1. Another scheme to cushion bank profits and make the “reserves” look necessary.

  2. a man named Stephen Write wrote this ”

    99% of all attorneys give the rest a bad name.

    Sorry Neil, just a joke.

  3. This may be a good beginning for banks that are not evil. I would rather see the regulators pushing to throw the big banksters in jail. and have good regulations for the banks that are not corrupt. Never to allow corruption again. Arm loans are to suck the poor into foreclosure and should not be allowed period. Flat interest rates that tell you the real deal is the only loans they should allow.

  4. from “RepoWatch” :

    “Money market funds, commercial and investment banks and other financial instituions make repo loans based on the soundess of the collateral. If trusts can’t be trusted to own the loans they’re pooling, these lenders might stop making repo loans collateralized by mortgage-backed securities, which would wipe out about a third of the repurchase market, one of the largest financial markets in the world.”

    GOOD—LET THEM FAIL—THE FASTER THE BETTER—

  5. They have all figured out how to take advantage of the “nitwits”…they didn’t count on the “nitwits” fighting back…but we are…

  6. The banks lend you 5% of the loan and collect interest on it,
    the banks lend you 95% of nothing and collect interest on it

    the homeowner invests a down payment
    the homeowner pays many months or years of mortgage payments
    (not knowing the fraud)

    wall street gives the banks money for the 5 % of real money
    wall street gives the banks money for 95% of nothing
    (knowing the fraud)

    so when this all fails why aren’t the homeowners given their money back first for this ponzi scheme? before the banks take care of their partners in crime?

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