November 01, 2011
Basel III - RIP
The King is dead. Long Live the ......
The court circular was short.
"It is with deepest regret that we announce that on 26 October at 22:00 CET, his Majesty King Basel III passed away. Doctors diagnosed Acute Embarrassment. Details of the funeral and succession will follow." The notice tailed off, "The king is dead. Long live the ..."
Gathered around the castle gates, the crowd read the notice and shed a little tear - it had all started so well. The young king, who had ascended the throne after his father Basel II died from terminal Irrelevancy, had thrown himself into his new role, working with his courtiers to create a whole raft, no ship, of new capital charges. Though somewhat plain, he and his new wife were beloved by the burghers of Basel.
But lately things had not been going well. Basel found that he was being left off email lists, and friends, like Angie Merkel, stopped returning his calls. The worse snub was when his US pal (or so he thought), Timmy Geithner defriended him on Facebook.
Basel felt sure that he had just the answer to the European banking crisis, more capital charges. He and his retinue had invented the Too Hot To Fail capital charge for Greece, Spain and Portugal, and the Too Cold to Fail charge for Ireland and the Nordic countries and the Three Bears charge for middle European countries, neither Too Hot nor Too Cold - Just Right to Fail.
Basel had had his Louis Vuitton ostrich skin luggage set (a wedding gift from the Botswana Regulatory Authority) packed and ready for weeks, just awaiting the call to help. He had ordered his footmen to have his fastest horses and swiftest carriage ready at all times so that he could travel through the night to Berlin or Brussels or Paris, or wherever. Each morning, when he heard the postman's yodel, Basel would run to the gates of Kastel Aeschenplatz to pick up the mail but each morning he would return dejected because there was no invitation with the crest of the European Union.
Basel knew something was going on. On BNN (the Basel News Network which runs a comprehensive 12*3.5 news service) he could see Angie, Nicky Sarkozy and Davy Cameron running here and meeting there. He knew what was going on - they were meeting with bankers behind his back.
Basel did not trust the bankers, especially the IIF [Institute of International Finance, my eye, Ignorant and Illiterate Fools he would rage]. He especially did not trust their leader, Baron Ackermann von Deutsche, the baddest banker in Baden, Baden.
Basel's health began to suffer. He did not sleep well. Courtiers would find him late at night prowling the corridors muttering "Paragraph 44, Total risk-weighted assets are determined by multiplying the capital requirements for market risk and operational risk by 12.5 (i.e. the reciprocal of the minimum capital ratio of 8%) and adding the resulting figures to the sum of risk-weighted assets for credit risk" - SO THERE!
When Basel learned that European heads of governments were to meet in Brussels with the IIF to negotiate 'haircuts' on Greek debt and the re-capitalization of banks, he was apoplectic. "How dare they discuss capital without me being present" he thundered. At one point, his courtiers had to physically restrain him from saddling up alone and galloping towards the Gothard tunnel to Germany. "Your Majesty", they said, "YOU do not go to bankers; THEY come to you!" His doctor had to slip some Valium in his fondue to calm him down.
As BBN closed at 8:30 pm, local bedtime, Basel III was forced to tune into BBC World Service to keep up with events in Brussels. On one hand he hoped that the negations would go well as, at heart, he did not wish another global recession like the one that eventually killed his father Basel II. But on the other hand, he hoped that talks would break down and he, like Super Regulation Man, would be called on to save the day.
But it was not to be. Around 9 pm local time, it was announced that a deal had been reached. There would be a 50% haircut on debt and worst of all a new mandatory capital of 9% for banks in the EU. "Only 9% with no quantitative or qualitative standards or firm-size adjustments. The bankers have won", Basel sobbed.
No one knows quite what happened next as Basel locked himself in his room. Courtiers could hear him weeping uncontrollably and shouting, "Paragraph 247 - Under the advanced approach, banks must calculate the effective maturity (M) and provide their own estimates of PD, LGD and EAD." "Their OWN estimates, I tell you, not some poxy politician's", he roared.
Around 10 pm, the sobbing suddenly stopped and the courtiers tentatively unlocked the door to the king's bedroom. They found him lying on the bed, face as red as beetroot and obviously departed. In his hand was his favorite Toblerone-shaped iPhone, which the Major Domo had to prize loose with pliers. The last thing that Basel had done was to read a text from his longtime friend and tutor Count Mario Draghi, who had been Basel's choice to head up the Financial Stability Board in Basel. The text was short "Bye Bas, new gig as head of European Central Bank, C U in Frankfurt". This had obviously been the last straw; the bankers had really won.
Though sad, the citizens of Basel were not too worried. Sure, the Basel dynasty was at an end, there was no offspring to carry on the work of global regulation. But now that the bankers had won, there was no need to pretend. The good citizens of Basel were surreptitiously pleased; no more conferences of boring banking regulators, no more being blamed for banking crisis and no more silly bloggers making light of their quaint eating and sleeping habits.
No more Basel to make fun of. What next? Who knows?
Posted by pjmcconnell at 07:09 AM
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