All Articles Finance While You Were Working - February 28

While You Were Working – February 28

Basel III is working, especially for US banks ... for now

3 min read


Bank for International Settlements headquarters in Basel, Switzerland

Fabrice Coffrini/AFP/Getty Images

Basel III regulatory reforms are working …

The Bank for International Settlements collected data from 210 banks and found “virtually all” met Basel III minimum and target CET-1 capital requirements. The report is based on data as of June 30, 2016 and includes all 30 banks that have been designated as global systemically important banks (G-SIBs). Right about now it is interesting to note that during Q2 of 2016, the 8 US-based G-SIBs reported combined earnings of approximately $25.2 billion. So while the 8 big US banks were meeting the much-maligned Basel III goals, they managed to eke out an average of $3.15 billion in earnings … per bank … in a single quarter.

… At least for US banks …

The FDIC announced today that the US banking industry set a record in 2016 with combined net income of $171.3 billion. It is no secret that the relatively speedy response of US regulators to the financial crisis of 2007-08 helped put US banks on a more rapid road to recovery than banks in other regions, particularly Europe. In fact, the position of US banks is so superior that at least one analyst thinks US banks will start buying up European lenders as soon as next year.  

… But if the Republicans get their way …

Rep. Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee, has every right to ignore the outstanding performance of the US banking industry and still work to roll back the Dodd-Frank Act. However, this quote he gave to CNBC (via Reuters) makes it seem like Hensarling is working on material to become a stand-up comic: “Dealing with Dodd Frank is a this-year priority. Clearly it comes behind Obamacare, clearly it comes behind tax reform.” Soooooo … Hensarling thinks Washington is going to repeal/repair Obamacare, overhaul the tax code AND unravel Dodd-Frank all in the next 10 months. That is some funny stuff.

… The tide could turn

Obviously, Basel III and the Dodd-Frank Act aren’t the same thing. However, they are born of the same overarching mentality when it comes to bank regulation. US banks have navigated both regulatory frameworks, are already flourishing and sit poised to dominate the international financial services landscape on many fronts. But if US policymakers insist on rolling back exisitng rules, their international counterparts are bound to respond in ways that will create global regulatory uncertainty. And remember how much bankers are supposed to hate regulatory uncertainty?

Moral of the story: Run your race

The above news items from today, coupled with the Daytona 500 that was run last weekend, lead me to draw this analogy: Right now US firms are leading the global banking race by 10 laps. With that kind of massive lead, they should just focus on running their race and bringing home the checkered flag. But US banks – and their frineds in the financial regulatory indistrial complex – are instead choosing to shout into their radios about how race officials need to change the rules so they can win by an even wider margin. They seem to be forgetting that changing the rules to this race also means changing the rules to the next race. And the next race might one in which US banks never enjoy the likes of a 10-lap lead.

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