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Yeah... no. Megan McArdle lays reality out pretty clearly: Banking Without Risk Is Impossible. http://www.bloomberg.com/news/2013-09-19/banking-without-risk-

by tsotha 13y ago

Yeah... no. Megan McArdle lays reality out pretty clearly: Banking Without Risk Is Impossible. http://www.bloomberg.com/news/2013-09-19/banking-without-risk-is-impossible.html http://www.bloomberg.com/news/2013-09-19/banking-without-ris...

wwweston 13y ago
"This emphatically does not mean I think there’s nothing we can do to make the banking system safer; like practically everyone else who writes about economics, I believe in higher capital requirements for banks, better resolution mechanisms for those that fail and more prudential regulation of how they can invest." (from the end of your article) Sounds like McCardle would agree with some of the Swedish approach. "Sweden has taken a lead on regulation, imposed some of the highest capital ratios in the rich world, with minimum levels of core tier-1 capital (the best sort) set at 12% from 2015, compared with a minimum of 7% by 2019 under Basel 3... Sweden’s banks have been earning respectable profits, are able to pay dividends and have seen their share prices soar... Swedish banks are generating among the highest returns on equity among rich-world banks. Number-crunchers at Citigroup reckon that the big Swedish lenders will be generating returns of about 15% over the next few years....Australian and Nordic banks are the most cost-efficient…in the world... Credit-default-swap spreads for Sweden’s big banks, a measure of default risk, are significantly lower than for many of their peers" Anything without risk is impossible. Including banking. Nobody's really arguing otherwise, just that we could bank with a lot less of it and some states appear to be doing that.
- tsotha 13y ago
  The part I was objecting to was the "safe" part. What we've seen over and over now is you never really know how resilient you banking sector is until you hit a real crisis.
  - nikatwork 13y ago
    Part of these systems include surprise "fire drills", where auditors will appear and present adverse market conditions to a bank. The bank will then have 30 days to successfully respond to the simulation. Kind of like stress testing for banks... What we've actually seen over and over is that banks without sufficient cash reserves or proper internal and external auditing get whomped in a real crisis. Then expect taxpayers to bail them out.
nikatwork 13y ago
Basel2 doesn't mean not taking risks. Basel2 means proving to auditors that you have enough money in reserve if you lose on your gamble. It prevents banks saying "all in on red!", then losing all their money, then going "uhm taxpayers pls bail us out now". And from the article you linked: > "I believe in higher capital requirements for banks." That's exactly what Basel2 is. I know there is a subset of HN who will kneejerk against any regulations, but I really can't understand why anyone would be against enforcing fiscal responsibility on our core banking systems. Especially given the massive social and taxpayer impact if the banks are irresponsible. Oh and one last thing... Basel2 is 100% voluntary in Oz. You can choose not to comply, but then you need to hold a higher capital reserve.
crdoconnor 13y ago
For anybody who wants to know who Megan McArdle is: http://shameproject.com/profile/megan-mcardle/ http://shameproject.com/profile/megan-mcardle/ Examples: >"In August 2007, The Atlantic hired McArdle as a business and economics blogger. Her first post, titled "Dont panic!" [sic], wrongly predicted that the liquidity shock that hit the financial system earlier that month was nothing to worry about: "Having a nasty market contraction does not mean that your economy automatically goes down the tubes."" >That same month, in September 2008, McArdle transformed her blog at the The Atlantic into a feverish Wall Street crisis-management propaganda outlet. She argued that bankers were largely innocent, blamed government regulators and homeowners for tanking the economy, and mocked news of a criminal investigation into Wall Street crimes, writing, "For what, I have no idea." McArdle also bizarrely claimed that bankers were victims of the real estate bubble, while blaming borrowers for being greedy profiteers It's not too difficult to see which team she is batting for.
- tsotha 13y ago
  I don't think I've ever read such a poorly founded hit piece.
  - crdoconnor 13y ago
    Which facts in the article did you disagree with specifically?
    - tsotha 13y ago
      Look at the snippet you posted and ask yourself if that could possibly by unbiased writing.
      - crdoconnor 13y ago
        So you're of the opinion that it's invalid because the author has an open agenda, not because it's actually wrong? You don't seem all that concerned about McArdles many biases.
pbreit 13y ago
That article doesn't even mention the key point of increasing reserve requirements. She asks "why not build a banking system where this can’t happen?" but the question is "why not build a banking system where this is less likely to happen?".

by tsotha 13y ago

wwweston 13y ago

"This emphatically does not mean I think there’s nothing we can do to make the banking system safer; like practically everyone else who writes about economics, I believe in higher capital requirements for banks, better resolution mechanisms for those that fail and more prudential regulation of how they can invest." (from the end of your article) Sounds like McCardle would agree with some of the Swedish approach. "Sweden has taken a lead on regulation, imposed some of the highest capital ratios in the rich world, with minimum levels of core tier-1 capital (the best sort) set at 12% from 2015, compared with a minimum of 7% by 2019 under Basel 3... Sweden’s banks have been earning respectable profits, are able to pay dividends and have seen their share prices soar... Swedish banks are generating among the highest returns on equity among rich-world banks. Number-crunchers at Citigroup reckon that the big Swedish lenders will be generating returns of about 15% over the next few years....Australian and Nordic banks are the most cost-efficient…in the world... Credit-default-swap spreads for Sweden’s big banks, a measure of default risk, are significantly lower than for many of their peers" Anything without risk is impossible. Including banking. Nobody's really arguing otherwise, just that we could bank with a lot less of it and some states appear to be doing that.

tsotha 13y ago
The part I was objecting to was the "safe" part. What we've seen over and over now is you never really know how resilient you banking sector is until you hit a real crisis.
- nikatwork 13y ago
  Part of these systems include surprise "fire drills", where auditors will appear and present adverse market conditions to a bank. The bank will then have 30 days to successfully respond to the simulation. Kind of like stress testing for banks... What we've actually seen over and over is that banks without sufficient cash reserves or proper internal and external auditing get whomped in a real crisis. Then expect taxpayers to bail them out.

nikatwork 13y ago

Basel2 doesn't mean not taking risks. Basel2 means proving to auditors that you have enough money in reserve if you lose on your gamble. It prevents banks saying "all in on red!", then losing all their money, then going "uhm taxpayers pls bail us out now". And from the article you linked: > "I believe in higher capital requirements for banks." That's exactly what Basel2 is. I know there is a subset of HN who will kneejerk against any regulations, but I really can't understand why anyone would be against enforcing fiscal responsibility on our core banking systems. Especially given the massive social and taxpayer impact if the banks are irresponsible. Oh and one last thing... Basel2 is 100% voluntary in Oz. You can choose not to comply, but then you need to hold a higher capital reserve.

crdoconnor 13y ago

For anybody who wants to know who Megan McArdle is: http://shameproject.com/profile/megan-mcardle/ http://shameproject.com/profile/megan-mcardle/ Examples: >"In August 2007, The Atlantic hired McArdle as a business and economics blogger. Her first post, titled "Dont panic!" [sic], wrongly predicted that the liquidity shock that hit the financial system earlier that month was nothing to worry about: "Having a nasty market contraction does not mean that your economy automatically goes down the tubes."" >That same month, in September 2008, McArdle transformed her blog at the The Atlantic into a feverish Wall Street crisis-management propaganda outlet. She argued that bankers were largely innocent, blamed government regulators and homeowners for tanking the economy, and mocked news of a criminal investigation into Wall Street crimes, writing, "For what, I have no idea." McArdle also bizarrely claimed that bankers were victims of the real estate bubble, while blaming borrowers for being greedy profiteers It's not too difficult to see which team she is batting for.

tsotha 13y ago
I don't think I've ever read such a poorly founded hit piece.
- crdoconnor 13y ago
  Which facts in the article did you disagree with specifically?
  - tsotha 13y ago
    Look at the snippet you posted and ask yourself if that could possibly by unbiased writing.
    - crdoconnor 13y ago
      So you're of the opinion that it's invalid because the author has an open agenda, not because it's actually wrong? You don't seem all that concerned about McArdles many biases.

pbreit 13y ago

That article doesn't even mention the key point of increasing reserve requirements. She asks "why not build a banking system where this can’t happen?" but the question is "why not build a banking system where this is less likely to happen?".