Banking Bair

Sheila Bair, no longer at leisure,
Said: "The banks have collective amnesia,
As they're not really fit
For the capital hit
That would come with the next global seizure."

Former FDIC head Sheila Bair has come out of semi-retirement to head a new watchdog group, the Systemic Risk Council. Backed by the Pew Charitable Trusts, the Council will monitor and encourage financial regulatory reform. In an interview with Kai Ryssdal of Marketplace, Ms. Bair voices concern that the major banks have forgotten the lessons of the financial crisis, and spend more time trying to water down reforms than strengthening themselves for the next crash. In a related piece, Marketplace's Heidi Moore explains that the major US banks alone require $500 billion of additional capital to withstand a major shock. In this, America is just the tip of the iceberg, as the greatest global systemic risk lies with banks in Europe and Japan.

Financial Crisis Post-Mortem

Economists noted the fact
That the big banks continue intact
By taking on debt,
Which, lest we forget,
Is implicitly government-backed.

At the 2011 American Economic Association annual meeting, leading economists - including MIT's Simon Johnson, co-author of "13 Bankers" - opined that financial reform had not done much to reduce the dangers posed by "too big to fail" banks.  Such banks maximize the amount of their debt financing because, due to the market's inference of a government guarantee, it is unnaturally cheap.  Similarly threatening are Fannie Mae and Freddie Mac which, Johnson said, "should be euthanized as soon as possible."

III for Basel III

The Basel III Capital Directive,
A liquidity crisis corrective,
Gives eight years for compliance
To banks and their clients
'Til new rules are fully effective.  

The Directive has caused a commotion
'mongst the banks on both sides of the ocean;
In percentage it leavens
From four up to seven
The equity capital quotient.  

The minimum equity score,
Now seven percent 'stead of four,
Will, the bankers all fear,
Make interest rates dear
When comparing with rates heretofore.

Overheard in a Bank Lobbyist's Office

"We argued, when banks appeared strong,  
That more capital was needless and wrong,  
But we changed this impression 
In the current recession,  
Which more capital, we claimed, would prolong."

Financial Reform Bill

Now the Senate has passed legislation
To invigorate bank regulation,
But left many a crater
To be filled in later,
As lobbyists learned with elation.   



Reform's really only been bracketed
So Dodd and Frank soon must be back at it,
And the agencies' staff
Write the more-detailed half,
So the lobbyists still get a crack at it.

Swap Talk

Said Obama: "For all of our betterment,
Derivatives need clearinghouse settlement,
But the five biggest banks
Are circling their tanks,
A politically potent impediment."

A Derivative Argument

Goldman and Morgan disputed
That derivatives must be concluded
Via centralized clearing:
"Our return's disappearing 
If this bank reform bill's not diluted."

Chris Dodd Enthuses

"At long last," the Senator said,
"My banking reform's put to bed;
It'll hammer a nail
Into 'Too Big to Fail' -
At the brokers, the banks - and the Fed."