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July 25 , 2009

Understanding Basel III, What is different after October 2013


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Life is becoming more complex for risk managers. We must have a "forward-looking perspective", remember?We have all these new laws and regulations ...... but we also have rules, proposals and reports to consider.Have you ever discovered the common elements of the various initiatives, including the Volcker rule in the United…

"The Basel III rules which provide that capital ratios have to be raised.

Yet, in my opinion, extra rules cannot solve all of our problems.

For every new rule will lead to creative solutions to evade that rule.

By making new rules, we won't make bankers less greedy, nor will we make them more ethical.

Instead of overregulating every detail, we should focus on the decisions bankers make."

This was a speech by Mr. Jan Sijbrand, Executive Director of the Netherlands Bank, at the University of Groningen (Ethics and the crisis in the financial sector).

Well ... he said that for every new rule will lead to creative solutions to evade that rule ... is he talking about me?

Mr. Jan Sijbrand continued:

"The first possible remedy is to criticize bankers severely and persistently.

This remedy has been applied in recent years, for bankers have been "bashed" quite severely over the past years; in many cases for the right reasons.

But, while some feel this bashing should continue until banks own up to their errors, let's not forget that we cannot do without banks.
They provide services that are vital to the functioning of a modern economy.

Also, let us bear in mind that the ongoing criticism may have a negative side-effect.

As anthropologist Joris Luyendijk - who observes bankers in London's financial district - points out: instead of subjecting themselves to self-criticism, bankers tend to grow indifferent to the public's view.

Some even go as far as to argue that "clearly we must have done something right, now that so many people seem to be jealous of our success".

Rather than changing their ways, bankers tend to wait until the crisis and the criticism have blown over.
Perhaps, they hope that once the economy picks up again, everyone will have forgiven and forgotten their errors."

What??? Joris Luyendijk - who observes bankers in London's financial district ...

Birdwatching is the observation of birds ... Bankerswatching could become the observation of bankers... Ornithologists were preoccupied with matters of species identification... Bankerologists will be preoccupied with matters of credit, market and operational risk identification ...
Mr. Jan Sijbrand is a mathematician. He said:

"When I enrolled at university to study mathematics, it had never crossed my mind that this choice might one day lead to a career in the banking sector.

I just liked mathematics, is what I remember.

Besides, in those days and in the first ten years or so after my graduation, banks weren't interested in hiring mathematicians.

But as in the following decades banking products grew more complex, banks began to turn their eyes to professionals with my academic specialty.

So this is how, after working with Shell for a number of years, one day I switched to the financial sector, and came to join, first, Rabobank and, later, ABN Amro.

And since 2011, I've been an executive director at De Nederlandsche Bank.

Of course, it can be argued whether it was a wise decision for banks to hire mathematicians ;)"

The Basel Committee published its first 10 documents in 10 years. This year alone it has published more than 30 - with more to come.
Stefan Ingves, Chairman of the Basel Committee on Banking Supervision and Governor of Sveriges Riksbank reminded it to his audience, speaking about "The evolution of the Basel Committee"

He continues:

"It is worth reflecting during the morning, as we discuss the Committee's achievements to date, that the basic problems we encounter today - poorly run institutions, interconnectedness and financial instability - are the same as those faced by the Committee when it was founded.

This is not to imply that nothing has been achieved: on the contrary, a great deal has been done and the world has benefited greatly.

But, despite our efforts, banks regularly lose money in the same old way: while pursuing profits, growth and market share without adequate heed to risk.

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