Bits on Banking & Finance

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Structure on the credit freezeup:

The banking system | Down the drain | Economist.com: "“NOT only is there no God,” said Woody Allen, “but try getting a plumber on weekends.” That just about sums up the problems of today's financial markets. The plumbing is badly blocked, and nobody seems able to fix it, not even the central banks, the market's immortals.

The problem is the apparent reluctance of banks to lend to each other, particularly over three months. That problem arises, in part, from uncertainty about who will pay the bill for America's subprime-mortgage collapse. But it also results from the need for banks to protect their own balance-sheets in the face of some unexpected claims on their capital."

On the next round of International Standards for Bank Regulation(s):

Bank regulation | Uphill work | Economist.com:

"Market turmoil raises concerns about the Basel 2 banking accord SISYPHUS was lucky. He could have wound up on the Basel committee. Since 1999 the committee has been sweating over the Basel 2 accord, a regulatory framework that guides how much capital banks should set aside to cover the level of risk they face. An end is finally in sight. A few European Union banks have already adopted the new rules; others will follow next year. A select number of American banks will implement Basel 2 in 2009. But this summer's credit crunch has put the incoming framework under scrutiny before it has even had a chance to prove itself. “This is the first stressed situation in a long time and it's directly pertinent to many of the changes being brought in by Basel 2,” says Vishal Vedi, a partner at Deloitte, an accounting firm."

And on the problems with the current structure of Credit Ratings:

Buttonwood | Credit and blame | Economist.com:

"The rating agencies operate on shaky foundations AS OSCAR WILDE might have said, it is the unspeakable in pursuit of the unrateable. America's Congress is holding hearings on the subprime-mortgage shambles and the losses that have resulted. The firms that must be feeling most nervous about the outcome are Standard & Poor's (S&P), Moody's and Fitch.

Those rating agencies have earned huge sums in the past ten years offering opinions on the creditworthiness of an alphabet soup of mortgage-related securities created by over-eager banks. As the market blossomed, so did the agencies' profits. Moody's net income rose from $289m in 2002 to $754m last year. But did the fat fees lead to a drop in standards?"