Do not repeat stupidity and centre of gravity

When you do something stupid and hurt yourself in the process, you tend to learn the lesson and not to repeat the stupidity any more. When we all dived into the 2008 financial crisis, the lesson learned (amongst others) was: too much derivatives on the banks balances and not enough capital to guarantee losses on their (derivative) investments. Basel III (the rules devised by the Basel Committee (composed of central banks and chaired by Mario Draghi)) was supposed to solve this. They adopted the international standard for the leverage ratio* on January 12. Without going into the technical details, here is what you should know about it (but only very few media have reported upon):

• it eases the requirements for products, such as derivatives, which make up large parts of the banks' balance sheets
• according to Financial Times sources, the effect of the adjustments could be a raise of big global banks’ average leverage ratio from about 3,8% to just over 4% -> This means that the Basel fiddling on how to count derivatives gives the banks a free 0,2% leverage ratio avoiding a capital increase of billions of $ or €.
• entry into force is only 2018, and the minimum required ratio is still not defined. Basel has proposed a minimum of 3%, but the US wants to strengthen this (higher %). Europe is lobbying to stay with the 3%. Go figure...

You want to have it crystal clear? Here's a quote from an analyst at BNP Paribas, who said the result was “more of a win for the industry than I was expecting”.

As a result of the Basel III agreement bank stocks went up 2-3% on Monday.

Lessons learned? None. At least we and our politicians have not learned any. The banks on the other hand have learned an important lesson: We (the banks) can gamble the global financial system, be bailed out with public money if it goes wrong, not be punished for it and even better, can start all over again playing the same game.


Often I get the impression that many of us who live in the Western world still haven't grasped that the centre of gravity on economic, political, hey on every level (except for earth's centre of gravity) has shifted to the East. This picture courtesy of the Worldbank should give those who believe they are (still) the centre of the world  something to reflect upon. More people live in the highlighted area than outside of it.

Worldbank - More people live inside this circle than outside of it.

* From the Basel website: The leverage ratio "promotes the short-term resilience of a bank's liquidity  risk profile. It does this by ensuring that a bank has an adequate stock of unencumbered high-quality liquid assets (HQLA) that can be converted into cash easily and immediately in private markets to meet its liquidity needs for a 30 calendar day liquidity stress scenario."