But the future of Britain will actually be determined by a range of factors now in the control of the authorities and how they handle the transition away from EU law will be a significant element in that ensuring that future works for the people rather than just isolates Britain as a neoliberal hell-hole. We received our first sign of how things might work out last week when the Bank of England’s Prudential Regulation Authority released their latest Consultation Paper (CP5/21, (February 12, 2021) – Implementation of Basel standards – which marked a sharp shift away from the lax EU banking standards. The Remainers were silent on this.Bill Mitchell – billy blog
This was the Bank of England Prudential Regulation Authority’s first major post-Brexit statement and upon reading it you will learn that it seeks to impose much tougher capital adequacy rules on British banks than operated within the European Union....
Britain banking regulation to tighten as a consequence of leaving the neoliberal EU
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
what DB was trying to do was to subtract its software assets from total assets used under Basel 3 to assess total exposure of the bank...
ReplyDeleteIt’s CET1/Total Assets
They are just trying to remove their software from the denominator...
iow why should a banks own non-loan (software) assets be counted as an “exposure” of the bank? They need the software to be able to function...
DB says here: “ The revised treatment and exemption of software from capital deduction will create incentives for further investment in banks’ digitalisation, a key challenge for future-proofing our business model and adjusting to the new competitive environment. The RTS will also release much-needed capital that can support lending, especially relevant in the COVID-19 recovery.”
They don’t want to have to reserve regulatory capital against their own software assets needed to operate.... and thus can increase bank loans/credit for the same amount of regulatory capital...
I don’t think MMT (at least fully) understands bank regulation...
PRA thinks the accounting abstractions are real and can “absorb” like a sponge
ReplyDelete“ This approach reflects the concern that intangible assets are not sufficiently loss absorbent on a going concern basis”
So there is 1 reification error...
Then Bill makes the same reification error and thinks capital can be”tightened” like a belt to hold up your pants:
“ So to cut a long and detailed story short, the new regulative environment proposed by the PRA will tighten bank capital ”
So there are 2 pretty major reification errors here...
PRA thinks capital is a sponge and bill thinks capital a belt....
Unfortunately this does not address the obvious nonsense at the heart of fractional reserve banking: the fact that banks can lend out money while telling depositors their money is safe. That is FRAUDULENT because if a bank makes silly loans, depositors are shafted – and have been shafted on hundreds of occasions thru history.
ReplyDeleteThat nonsense is ameliorated nowadays by taxpayer backed deposit insurance and multi billion dollar bail-outs, but that equals a subsidy of banks! And that’s just yet more nonsense.
The entire fractional reserve system should be abandonned and replaced with full reserve, a system backed by several Nobel economists and dozens of non-Nobel economists.
When you think about it, a full reserve requirement is just another regulation and allows banks to blame government (and demand bailouts) should things go wrong.
ReplyDeleteInstead, banks should be 100% private with 100% voluntary depositors so that:
1) Failure is the entire responsibility of the banks themselves.
2) The non-bank economy is not held hostage by the banks.
And who can legitimately argue against 100% private banks with 100% voluntary depositors when we are supposed to be concerned with equal protection under the law?
They never fail Ralph unless the CB adds too many Reserve Assets too quickly...
ReplyDeleteBanks are highly regulated... CET1/Total Assets = Constant
If CB adds too many assets they fail... it’s the only reason they ever fail...
What if there was accounts at the central bank then everyone decided to withdraw their munnie from the CB and put it in private banks?
ReplyDeleteThen the CB would be busted and need a “bailout!” ... so what’s the difference? Who cares?
And Bill has it backwards the EZ regulations require more capital than the BOE regulations:
ReplyDeletehttps://www.risk.net/risk-quantum/6810371/the-boe-leverage-ratio-welcome-relief-or-regulatory-arbitrage
“ But Risk Quantum analysis suggests the bar was not raised high enough. In fact, the gap between the BoE’s measure of leverage and that used by the EU – which does not discount central bank claims – at large UK banks has increased steadily since the revised measure came into force three years ago. Put simply, UK banks are reaping ever-higher leverage capital savings through the BoE measure that far outweigh the 25bp uplift to their minimum leverage ratio requirement. ”
BOE subtracts Reserve assets from total assets so UK banks require LESS regulatory capital.... and EZ banks (like DB) have been struggling under constant increasing Reserve Assets due to ECB asset purchases...
The PRA might be in on the scam here...
Or PRA is stupid..,
ReplyDeleteWhat if there was accounts at the central bank then everyone decided to withdraw their munnie from the CB and put it in private banks? Franko
ReplyDeleteThen fiat would merely move from individual accounts at the CB to bank reserve accounts at the CB.
Then the CB would be busted and need a “bailout!” ibid
No, because CB liabilities (and assets) would be unchanged.
Andrew, I have no objection to private bank accounts where “Failure is the entire responsibility of the banks themselves”. But the reality is that hundreds of banks not supported by taxpayers have failed over the centuries. And like other advocates of full reserve, I think everyone has a right to a totally safe bank account provided by govt / the central bank.
ReplyDeleteAfter all people can hold govt / CB money in the form of $100bills, so why can’t they hold it in digital form? That’s all full reserve is: a right to a totally safe govt / CB backed account, and for those who want it, a riskier non govt backed account at a private bank.
Matt, Re your claim that private banks never fail, what about Northern Rock and Lehmans? Moreover, it is debatable as to whether anything much has changed since the 2007/8 bank crisis. The chairman of the UK’s main govt investigation into banks after the crisis, John Vickers, said that bank regulation is still not nearly good enough, and that another crisis will occur sometime unless something is done about that.
ReplyDeleteRe your question as to what would happen if everyone withdraws from the CB and puts their money into private banks, the CB would not be “busted” as you suggest because the CB has no liabilities: in effect, it’s just a safe deposit box containing tons of $100 bills. If all the “bill holders” want to take their money out, why would the owner of the deposit box be bothered?
The only problem would be a big rise in demand because private banks would lend a lot more, so that might cause excess inflation. But that’s easily solved by the usual “anti-stimulatory” measures: an interest rate hike or tax increases.
and for those who want it, a riskier non govt backed account at a private bank. RM
ReplyDeleteYes, but I would not impose ANY reserve, capital or any other (besides normal business) requirement on those at-risk accounts lest government assume any responsibility for private bank failure.
Lehman was a Broker-Dealer Ralph... not a regulated Depository Institution...
ReplyDeleteNorthern Rock perhaps a bank or "bank-like" but like I said they failed due to spike in BOE Asset Purchases which spiked Reserve Assets and makes the banks busted..
Look at a chart of BOE balance sheet... big spike in 2008...
https://fred.stlouisfed.org/series/UKASSETS/
This is the only reason banks are ever seen to "fail"... CB puts too many Reserve Assets on Depository balance sheets and they dont have the regulatory capital to support the additional Reserve Assets so they have to shut it down...
If they didnt do this the regulated Depositories would never fail...
Same thing caused the 1929 crash and subsequent Great Depression..,
ReplyDelete“ No, because CB liabilities (and assets) would be unchanged.”
ReplyDeleteNo it wouldn’t.. that’s not “automatic “... CB liabilities are an independent function of policy ... iow if Fed doesn’t buy other assets in response then their liabilities won’t increase..,
They perhaps would post negative equity and think they were bankrupted..,
"BOE subtracts Reserve assets from total assets so UK banks require LESS regulatory capital"
ReplyDeleteRational regimes do subtract reserve assets because those and the matching deposits are nothing more than outsourced central bank holdings so the central bank doesn't have to run current accounts.
Reserves is a peculiarly US obsession. They have never factored into banking in the UK. There wasn't even such a thing until the mid 2000s. The UK always much preferred to clear to Bills of Exchange.
The US is peculiar setup in world terms, and really not very effective.
They perhaps would post negative equity and think they were bankrupted.., Franko
ReplyDeleteTransfers from individual CB accounts (when they are finally allowed) to the accounts of banks at the CB would not change the liabilities, assets and thus equity of the CB.
Same thing caused the 1929 crash and subsequent Great Depression.., Franko
ReplyDeleteHow? When the Supplemental Leverage Ratio was not even introduced until Basil III (2010)?
so the central bank doesn't have to run current accounts. NeilW
ReplyDeleteIt also allows private banks to create new, unmatched by fiat deposits, which are liabilities for fiat, and hope to get away with it since the non-bank private sector (including local governments) may not even use fiat except as grubby coins and paper Central Bank Notes - a gross violation of equal protection under the law.
Andrew, I agree with your point "I would not impose ANY reserve, capital or any other (besides normal business) requirement on those at-risk accounts lest government assume any responsibility for private bank failure."
ReplyDelete“How? When the Supplemental Leverage Ratio was not even introduced until Basil III (2010)?“
ReplyDeleteThey’ve always been there... where do you think the BIS got the idea ?
“ Rational regimes do subtract reserve assets ”
ReplyDeleteWell that’s not what they do and we have to deal with the system we have...