Saturday, December 9, 2017

Huge rally in European bank stocks


Bank regulatory parameters matter both pro and con...

The Basel Committee on Banking Supervision on Dec. 7 issued new rules on how banks estimate the risk of mortgages, loans and other assets. The compromise, reached after fierce lobbying by the industry, will cause “no significant increase” of overall capital requirements, the regulator said. For some big banks, capital demands will actually decline.


 The "stability creates instability!" morons don't understand this.





6 comments:

Andrew Anderson said...

The "stability creates instability!" morons don't understand this.
Franko

In feedback control theory, iirc, the lack of or inadequate negative feedback causes either oscillation, i.e. instability (e.g. boom-bust) or a non-responsive system to normal inputs (i.e. stuck "on" or stuck "off", e.g. hyperinflation or permanent Depression).

With the banks, their liabilities correspond to negative feedback. What then, from a systems perspective, is the effect of rendering those liabilities toward the non-bank private sector largely a sham?

Thus attempts to reform banking without fixing the basic accounting (Equity = Assets - Liabilities) are doomed to failure from a systems perspective.

Matt Franko said...

"With the banks, their liabilities correspond to negative feedback. "

No I wouldnt say that... liabilities are "on the right" in Accounting terminology there is no normative attribution given to this term...

In Science, all the terms are non-normative...

You are asserting that bank liabilities are somehow 'negative' via other uses of this English word...

Feedback is neither good (positive) or bad (negative) these terms indicate perhaps that either the regulatory parameter is above (positive) or below (negative) a level which will either result in an output above or below the regulatory Set Point...

What the set point is maybe you could think of that as being normative .... set the thermostat at 68 which is environmentally friendly or at 72 which is perhaps abusive to the environment which set point do you use?

Set UE to zero or maintain it above zero to maintain a reserve of unemployed for normative purposes which one?

Once you decide on which one then the unqualified/non-technical people need to just get the F out of the way...

Matt Franko said...

The set point is the Leverage Ratio of 0.1 which is Capital/Assets...

So any govt action that modifies either Capital or Assets used in this equation will foment a systemic response to get back to the Set Point of 0.1... then you have to study all this activity in time domain.. ie how fast can the individual parameters be adjusted ...

Here this reform lowered the assets used to compute the LR so accordingly the banks become immediately over capitalized so that newly excess capital is now directly available to shareholders so the stock price goes up to reflect the new regulatory arrangements...

Works the other way too iow if the govt acts to raise the asset levels then the system has to lower the price of all the other assets in order to maintain the 0.1 set point... as capital is fixed in the relevant time domain response time of the capital account...

Ralph Musgrave said...

Banks will have achieved this not by employing any sort of sophisticated argument, but by employing the oldest and dumbest trick in the world, which Paul Volker pointed to. As he put it, “You know, just about whatever anyone proposes, no matter what it is, the banks will come out and claim that it will restrict credit and harm the economy…It’s all bullshit.”

Matt Franko said...

Well if you believe that Ralph then you have to believe it can work the other way too....

iow if regulatory changes can be in banks favor, then they can be detrimental to banks also..

So complaining of favoritism when reg changes favor banks while at the same time saying "stability creates instability!" when reg changes are harmful reveals the person as a moron....

Matt Franko said...

Ralph, Volker is a moron if he said that ... not qualified/competent to get anywhere near this system or probably any other...