Capital Arguments: Capital was king on BankThink this week, with several columnists reacting to regulators' recent efforts regarding capital requirements. "Risk Doctor" columnist Clifford Rossi argued that banks' model risk is worse than ever, thanks to U.S. implementation of Basel III. "The concept of imposing a set of risk-based capital standards spanning major risk types is sensible in theory, but turns out to be extraordinarily cumbersome at best and systemically risky at worst in practice," he argued. "Getting back to basics with simple leverage ratios, as imperfect as they may be, is the most palatable solution." One reader agreed with this assessment. "Regulators must be very careful of not introducing distortions that might affect the resource allocation in the real economy which, at the end of the day, is, in fact, even more important than the banks," this commenter added. "All that speaks loudly in favor of the simplicity of the leverage ratio." Risk consultant Mayra Rodríguez Valladares pointed out that a new flurry of directives indicates the Basel Committee on Banking Supervision means business when it comes to improving the safety and soundness of large, interconnected banks. These directives include an admission that (as Rossi argued) Basel III may be too complex. "By the time all comments are handed in on October 11 and vociferously debated, the committee may well be underway to crafting Basel IV," Rodríguez Valladares concluded in a column that kicks off her nine-part series "Busy Summer in Basel". Meanwhile, Ozgur Kan of the Berkeley Research Group argued cumulative preferred stock should be part of Tier I capital and Donald Robertson of Moody's Investors Service urged investors to look beyond capital ratios when comparing banks.
Counterpoints: Mortgage banker Richard Booth responded to Cliff Rossi's column on reverse mortgages by arguing that the real problem with the product stems from a lack of competition in the industry. One reader took a different view, writing, "The real problem with reverse mortgages is the lack of any suitability standard and protections for the consumer." Meanwhile, John H. Dalton of the Financial Services Roundtable offered an alternative to Alex J. Pollock's view on the Corker-Warner GSE reform bill. "The bipartisan Corker-Warner bill may be the key to unlocking legislative action on GSE reform," Dalton wrote. "The bill may be a bridge between the advocates of a purely private market and those who favor some role for the federal government."
In Case You Missed It: BankThink's editors would like to extend a thank you to the readers who contributed to our 2013 Summer Reading List for Commercial Bankers. Those looking for a good book to bring along on their next vacation can find the full list on AmericanBanker.com.
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