20 February 2019 FT — Articles to Read

20 March 2019


Question: According to MSN: Lifestyle (Brides), what are five (5) signs your marriage is headed towards divorce?


Why further financial crises are inevitable – Pg. 9

–          We learnt this month that the US Federal Reserve had decided not to raise the countercyclical capital buffer required of banks above its current level of zero, even though the US economy is at a cyclical peak

–          It also removed “qualitative” grades from its stress tests for American banks, though not for foreign ones

–          ….the Financial Stability Oversight Council…removed the last insurer form its list of “too big to fail” institutions

–          …show that financial regulation is procyclical: it is loosened when it should be tightened and tightened when it should be loosened

–          …with average ratios of assets [banks] to core capital of about 17 to one, their loss-bearing capacity remains limited

–          We can see four reasons why this [procyclicality] tends to happen: economic, ideological, political and merely human

–          There is a tendency for risk to migrate out of the best regulated parts of the system to less well regulated parts

–          The big economic reason is that over time the financial system evolves

–          It is hard for regulators to catch up with the evolution of what we now call “shadow banking”

–          The ideological reason is the tendency to view this complex system through a simplistic lens

–          Politics are also important.  One reason is that the financial system has control of vast resources and can exert huge influence

–          Borderline or even blatant corruption also emerges: politicians may ben demand a share in the wealth created in booms

–          Then there is the human tendency to dismiss long-ago events as irrelevant… (Prof Note: One point of ire that I have is the time I spent in high school learning about European Wars.  I would have been better off learning about global financial crises.)


China lenders in a $260bn hold after responding to stimulus – Pg. 15

–          Listed Chinese banks will need to raise about $260bn in fresh capital over the next three years as regulations force shadow-bank loans back on balance sheets and global rules on systemically important groups impose extra requirements on the largest lenders

–          China’s regulator has forcefully implemented Basel III rules on capital adequacy as it seeks to fortify lenders against risks from a decade of debt growth, which is leading to record defaults

–          Bank of China, the country’s fourth-largest lender, in January became the first Chinese bank to issue a perpetual bond, which qualifies as additional tier one capital under the Basel rules

–          …additional tier one and tier two capital represent less than a tenth of China banks’ capital needs

–          Beyond Basel III, the largest China lenders face additional requirements for “total loss-absorbing capacity”.  This requirement applies to lenders that the Financial Stability Board, an arm of the G20, has designated as globally systemically important banks

–          For emerging markets, including China, such banks will have to meet total loss-absorbing capacity requirements beginning in 2025, with a higher requirement taking effect in 2028

–          Chinese regulators led by the People’s Bank of China said last year that they would take inspiration from the global framework and designate some lenders as domestically systemically important banks.  The banking regulator has set the minimum capital adequacy ratio for domestically systemically important banks at 11.5% of risk-weighted assets, compared to the normal 10.5%


Answer: (1) There is a sense of contempt; (2) You are fighting about money; (3) You are fighting about chores; (4) You have stopped communicating; (5) You are unhappy