Page 20 - Monocle Quarterly Journal Vol 1 Issue 1 Q4

BANKING
“Lehman’s failure, and the extreme market impact that followed, virtually eroded market con dence completely, leading policy makers to react with measures never before contemplated.”
within the global banking system. By this is meant that some very simple statistical realities are not as transparent as one would like them to be from an analytical perspective. For example, if one were to ask the question as to how many of the world’s top 1000 banks failed in the period during and after the 2007/8 crisis, one would nd what appears to be a relative absence of information in respect of this. e main reason is that – following the repercussions of allowing Lehman to fail – policy makers used a variety of interventions to prevent further explicit failure. From these interventions emerged the phrase ‘Too Big to Fail’. Lehman’s failure, and the extreme market impact that followed, virtually eroded market con dence completely, leading policy makers to react with measures never before contemplated. From a monetary perspective, particularly, the extent of the interventions clouded over the breadth and depth of banking as well as corporate failure – and in fact to some extent continues to do so, not only within particular individual banks but across the banking fraternity itself.
An Analysis of the BCBS Regulations
Monocle Solutions in its continued research e orts became particularly interested in whether the new legislation for banking, written and codi ed by the Basel Committee for Banking Supervision (BCBS) post-crisis – in what was known as Basel 2.5 and then Basel III – will e ectively address the main reasons for the crisis in the rst place. As an example, we have noticed that there would appear to be far more regulation imposed upon the banks than on the periphery corporations that helped to manufacture the crisis to the extent of severity that it reached. e credit agencies, for example S&P and Moody’s – those agencies that are paid by banks to issue credit ratings for the issuance of their own debt and debt instruments – seem vastly less a ected by regulation than the banks themselves. Yet they issued many thousands of triple A-rated stamps of approval on collateralized debt obligation (CDO) structures that later exploded.
To further this point using a recent example: e US Department of Justice ne of USD 14 billion that was levied against Deutsche Bank, for their negligence in selling toxic mortgage-backed securities (MBS), could potentially put Deutsche into a severe undercapitalised position and may even lead to their failure. is will impact not only the jobs of those people who work at Deutsche Bank, but will have a potentially severe systemic impact. Note that these nes target Deutsche Bank speci cally but do not target the credit agencies that rated these securities.
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