I understand that banks used derivatives amongst other means to fudge compliance with the previous limit for fractional reserves set by the BIS.
The requirement to comply with this ratio set by the BIS appears to have contributed, if not directly caused, the current world financial crisis.
I understand that Banks and Insurance companies use actuaries to advise them of potential risks and set rates of interest on loans etc.
Well this is a new one on me, just who is claiming that the BIS caused the crisis? Please provides some references.
On an international basis UBS AG was one of the worst hit having to write off $50b of it's own capital and as a consequence raise new capital of about $45b+ and Swiss government support of about $6b to survive (at this point the government support has been repaid at a profit to the government). UBS have produced a very detailed report on how it all went wrong and it makes very good reading for anyone trying to understand what went wrong with the banks. [broken link removed].
In summary it would appear that three factors caused UBS and by extension other banks to act as they did:
- An over reliance on maths models to assess risk, rather than applying common sense
- Senior management bonuses driven by short term profitability goals rather than long term outcomes
- Abolition of the Glass-Steagall Act in the US and similar legislation in Europe, which freed the banks to use their capital to finance much high risk activities than before, including mortgage securities
To date this is the first time I've ever heard the BIS being blamed, so I'm very interested in seeing the references...
Jim.
What's your connection to the BIS Jim?
ONQ
The Bank for International Settlements, it operates - with no mandate - as the Central Bankers Bank, so far as I have been able to determine.
http://en.wikipedia.org/wiki/Bank_for_International_Settlements
Its potential for worsening the international credit crunch for calling for higher interest rates is second to none.
http://www.guardian.co.uk/business/2011/jun/26/international-banking-regulator-rates
Certainly not everyone sees the BIS as a benign influence.
http://bullionbullscanada.com/index.php?option=com_kunena&Itemid=122&func=view&catid=17&id=9807
And its historical origin and role in Europe exposes the real reason why Germany didn't invade Switzerland.
http://www.bilderberg.org/bis.htm
The veil of relative secrecy surrounding the BIS' mandate and the threat to the world economy that this centralised and unmonitored power represents - if misused - is being eroded.
ONQ.
I understand that banks used derivatives amongst other means to fudge compliance with the previous limit for fractional reserves set by the BIS.
I have no connection what so ever to the BIS... apart from the fact that I used to walk past it's head quarters in Basle on my way to work for 4 years.
On the other hand, over the years, I have, as the author of various banking software applications, been involved in several discussions about implementing it's requirements known as Basle II and now Basle III, so I am more aware than most of it's importance in the banking community. And as I have already said I have yet so see any credible argument to suggest that the crises was caused by the BIS.
And while it is true that Basle III, will require banks to meet a higher T1 ratio, which will result in them being less profitable, they will at least be less risky from a depositors point of view.
With respect to your references, the wikipedia article is very good of course, but the rest sound more like your typical conspiracy theory than anything else to me.
Jim.
Where is the reference for this statement? I know that Credit Suisse have made a proposal to use for Basle III, but I'm not aware of their use in the past???
Jim.
I'll use the same business week reference I included in another post.
http://www.businessweek.com/magazine/content/08_17/b4081083043159.htm
I wasn't specifically referring to Irish banks, but I'm sure they played a similar game.
If these geniuses are allowed raise interest rates after their hamfisted handling of the banking crisis it will ruin the world economy.
IMO this is a deliberately set up plan by the smartest money men in the room to beggar the middle classes and create wealth for themselves.
If that happens, and it is entirely foreseeable to a layperson like me and entirely unbelievable to suggest this wasn't planned, then the Swiss may have more surprises coming.
ONQ
What a load of Bull !
First of all decision making within the BIS is in fact the decisions of it's 60 members, some very powerful ones such as the Fed, the ECB and the Bank Of England and to suggest that these bodies would accept being pushed around by the staff of BIS is just not credible. And Secondly, it is the Fed, the ECB and the Bank of England that are the main drivers when it comes to setting interest rates and who in fact have the authority to do so.
Jim.
Where is the reference for this statement? I know that Credit Suisse have made a proposal to use for Basle III, but I'm not aware of their use in the past???
Jim.
Nice simple article. Shouldn't be criticised for keeping it simple.
Banks lent up to 8 times income on house purchases.
They could only do this through massively increasing the credit supply. They could only do this by holding lower cash reserves and through an increasing loans to deposits ratio.
The regulator could have limited these vital actions in any number of ways.
Simple as that. Yes you can delve deeper into why it happened (opening up of the market to foreign banks, ECB funding, etc) but that's not necessary to understanding what happened and how it should have been stopped.
Some people obviously don't like the simplicity, but you can't argue the facts.
What do you think the real story is?It appears that it is precisely this lack of competence that is supposedly guiding the BIS and the people Jim tells me it fronts for - the ECB, the FED and the IMF.
Or so they would have us believe.
ONQ.
There is no mystery to this, Purple.
The official assessment is that all this [repeated boom and bust cycles] happens through human error and greed in a free market system.
This is based on certain assumptions about the free market system which aren't well supported in my opinion.
An unregulated free market is the unmonitored playground of corrupt corporations seeking to accumulate wealth.
To support this thesis, just follow the money and see who gains and who loses in the medium term.
The results tell the real story.
ONQ.
Are you suggesting that, far from setting policy, the BIS is merely a figurehead organization for the three largest groupings of banking interests in the world?
ONQ.
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