Basel III and Bank Capital Requirements

Two weeks ago I sat in my hotel room in Boston and watched HBO’s “Too Big to Fail,” a made-for-television movie by Andrew Ross Sorkin, The characters of Hank Paulson, played by William Hurt, and Ben Bernanke, played by Paul Giamatti, brought back memories of the Fall of ‘08 when our financial world was spinning out of control. (Giamatti is one of my favorite character actors and I particularly enjoyed him as Miles in “Sideways.”) I had read Sorkin’s book and lived through those harrowing days of the Lehman Brothers’ collapse and the freezing of our global credit markets–and still the movie brought back many vivid memories, including Hank Paulson kneeling before Nancy Pelosi. This was during the time that Austin Ventures and Case Interactive Media were negotiating to acquire Asset International. We took a deep breath, moved forward and have not regretted one day of our investment in the financial information services sector. Although there were moments during the first quarter of ‘09 when the road in front of us looked treacherous, we firmly believed that we could navigate our way as we built the company and moved into the global markets.

Back in January 2010, I wrote in TARP Payback: Act II: “On Thursday of this past week, President Obama and his financial team took aim again at our 50 largest financial institutions, those with more than $50B in assets, by proposing a new Bank Tax…. President Obama has called this new tax ‘a financial crisis responsibility fee’… I sense that this populist appeal will play well with both main street Democrats and Tea Party Republicans, but it will not strengthen our financial institutions during a recovery cycle and will probably result in curtailed lending and could end up being passed on to companies and consumers. If both parties were really interested in avoiding a replay of the risk taking that lead to the meltdown of the global financial system, they would be trying to find ways to strengthen the capital base of these institutions and avoid the amount of leverage that resulted in the risk taking in the first place. I believe that the leaders of our largest financial institutions would react positively to a call to strengthen their capital base, as opposed to being singled out again for blame and to pay for the government’s decision to bail out the automotive industry.”

In November 2010 the Group of 20 endorsed the Basel III global regulatory standards. In an opinion piece in the Wall Street Journal, Michael Barnier, the European Commissioner for Internal Market and Services, wrote, “Specifically, Basel III will mandate significantly higher capital requirements and new liquidity standards, so that banks can withstand financial shocks and longer-term funding stress–and better absorb potential losses. Banks will also be subject to measures to discourage excessive leverage.” While there are many other components of Basel III that will be debated in the coming weeks and months, I still believe that increasing the capital requirements for our largest banks will allow them to restore growth and avoid a replay of those harrowing days during the Fall of ‘08. (“Basel III Will Bolster Banks,” WSJ, June 2, 2011)

Professional Sports Rivalry
Starting tonight the Boston Red Sox and New York Yankees start a 3 game series in the Bronx. After Boston’s very slow start to the season and the Yankees being swept in their last series, the American League East has returned to normal and the Yankees take a slim 1 game first place lead into this evening’s game. There is not a better rivalry in professional sports.