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Subject: Matthias Chang: Basel III - The Global Banks at The Edge of
The Precipice. Trillions of "Toxic Waste" in the Global Banking System
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Basel III: The Global Banks at The Edge of The Precipice. Trillions of
"Toxic Waste" in the Global Banking System

By Matthias Chang

URL of this article: www.globalresearch.ca/index.php?context=va&aid=21099

Global Research, September 20, 2010

The Global Too Big To Fail Banks are so precarious that literally
anything can trigger a collapse in the coming months.

I have read recent commentaries on Basel III posted to various
renowned websites and financial publication, but they missed (or
deliberately misled) the underlying message of the proposals, the
implementation of which will be delayed till 2017 and some till 2019.

Basel III is pure spin and its timing was to assuage the deep-seated
fears that there are no solutions in sight to save the fiat money
system and fractional reserve banking.

THE PROBLEM

The major global banks are all under-capitalised and this was all too
apparent when Lehman Bros. collapsed. Banks were borrowing so much and
so recklessly to play at the global casino that when the bets went
sour, they were staring at a black-hole in the $trillions. In fact the
banks are all insolvent.

The problem was compounded when the central bankers (all are corrupt
without exception) and regulators turned a blind eye to how bankers
defined what constituted “capital” so as to circumvent the need to
maintain the capital ratio.


THE BASEL III SOLUTION

At its 12 September 2010 meeting, the Group of Governors and Heads of
Supervision, the oversight body of the Basel Committee on Banking
Supervision, announced a substantial strengthening of existing capital
requirements and fully endorsed the agreements it reached on 26 July
2010.

These capital reforms, together with the introduction of a global
liquidity standard, deliver on the core of the global financial reform
agenda and will be presented to the Seoul G20 Leaders summit in
November.

The Committee’s package of reforms will increase the minimum common
equity requirement from 2% to 4.5%.

In addition, banks will be required to hold a capital conservation
buffer of 2.5% to withstand future periods of stress bringing the
total common equity requirements to 7%.

This reinforces the stronger definition of capital agreed by Governors
and Heads of Supervision in July and the higher capital requirements
for trading, derivative and securitisation activities to be introduced
at the end of 2011.

Increased capital requirements

Under the agreements reached, the minimum requirement for common
equity, the highest form of loss absorbing capital, will be raised
from the current 2% level, before the application of regulatory
adjustments, to 4.5% after the application of stricter adjustments.

This will be phased in by 1 January 2015.

The Tier 1 capital requirement, which includes common equity and other
qualifying financial instruments based on stricter criteria, will
increase from 4% to 6% over the same period.

The Group of Governors and Heads of Supervision also agreed that the
capital conservation buffer above the regulatory minimum requirement
be calibrated at 2.5% and be met with common equity, after the
application of deductions.

The purpose of the conservation buffer is to ensure that banks
maintain a buffer of capital that can be used to absorb losses during
periods of financial and economic stress.

While banks are allowed to draw on the buffer during such periods of
stress, the closer their regulatory capital ratios approach the
minimum requirement, the greater the constraints on earnings
distributions.

This framework will reinforce the objective of sound supervision and
bank governance and address the collective action problem that has
prevented some banks from curtailing distributions such as
discretionary bonuses and high dividends, even in the face of
deteriorating capital positions.

A countercyclical buffer within a range of 0% - 2.5% of common equity
or other fully loss absorbing capital will be implemented according to
national circumstances.

The purpose of the countercyclical buffer is to achieve the broader
macroprudential goal of protecting the banking sector from periods of
excess aggregate credit growth.

For any given country, this buffer will only be in effect when there
is excess credit growth that is resulting in a system wide build up of
risk.

The countercyclical buffer, when in effect, would be introduced as an
extension of the conservation buffer range.

These capital requirements are supplemented by a non-risk-based
leverage ratio that will serve as a backstop to the risk-based
measures described above.

In July, Governors and Heads of Supervision agreed to test a minimum
Tier 1 leverage ratio of 3% during the parallel run period.

Based on the results of the parallel run period, any final adjustments
would be carried out in the first half of 2017 with a view to
migrating to a Pillar 1 treatment on 1 January 2018 based on
appropriate review and calibration.

Systemically important banks should have loss absorbing capacity
beyond the standards announced today and work continues on this issue
in the Financial Stability Board and relevant Basel Committee work
streams. [1]

THE LOOPHOLE & ADMISSION OF INSOLVENCY

Since the onset of the crisis, banks have already undertaken
substantial efforts to raise their capital levels.

However, preliminary results of the Committee’s comprehensive
quantitative impact study show that as of the end of 2009, large banks
will need, in the aggregate, a significant amount of additional
capital to meet these new requirements.

Smaller banks, which are particularly important for lending to the SME
sector, for the most part already meet these higher standards.

The Governors and Heads of Supervision also agreed on transitional
arrangements for implementing the new standards.

These will help ensure that the banking sector can meet the higher
capital standards through reasonable earnings retention and capital
raising, while still supporting lending to the economy.


THE IRON CLAD CONFIRMATION THAT BANKS ARE IN DEEP SHITS

Please read all the passages which I have highlighted in bold in the
above paragraphs. If the banks were at all material times adequately
capitalised and the central bankers in collusion with these banksters
and fraudsters were prevented from manipulations, there would not be
any need for Basel III regulations.

In saying this, I am not in anyway conceding that even with these new
requirements, the banks will be adequately capitalised.

The simple truth is that as long as the derivative casino is still
running and banks are allowed to continue their off balance sheet
activities, nothing will be resolved.

The 2 tables below tell the whole story:





Source: Basel iii Compliance Professionals Association (B iii CPA)


How can the ultimate capital requirement of 8 percent be adequate when
leverage under Basel III is still allowed at the astronomical rate of
33:1?

In the second table, and it is a no brainer to conclude that the
banking crisis (if we are lucky) may be “resolved” by 2015 but it is
most likely that it can be only resolved by 2017/2018 .

This is an express admission that all banks would require such a long
transition period to comply with the new requirements!

The stark reality is that the Too Big To Fail Banks do not have the
ability and or the means to raise capital at this critical juncture.

To use an analogy, the banking patient will be in Intensive Care until
2017, which is rather optimistic for the projection implies that the
patient may be able to recover.

It is my view that Basel III is pure spin and is intended to convey
the impression that the central bankers and regulators have things
under control. This is a big lie!

I have said in my earlier article that the FED through QEI purchased
toxic assets from the banks and part of the monies were used to shore
up the reserves and part to purchase treasuries (to give an illusion
of better quality assets in banks’ balance sheet).

There are so much more, $trillions more of toxic waste that no amount
of QE (quantitative easing) can remove them. This situation does not
even take into consideration the toxic waste in SPVs – the off balance
sheet mumbo jumbos. The FED and Accounting Bodies have suspended
accounting and regulatory rules that have enabled the banks to hide
such toxic waste in SPVs and not having to account for them in the
banks’ balance sheet.


LIFE SUPPORT

QEI has merely enable the Too Big To Fail Banks to continue some form
of banking activities thus deceiving the public that they are solvent
and prevent a bank run.

But the central bankers cannot have the cake and eat it as well. In
trying to shore up public confidence in banks with the introduction of
Basel III, they have inadvertently let the cat out of the bag and as
the above two tables show, the banks are all insolvent.

Additionally, whatever reserves that have been accumulated are
insufficient to stimulate further lending, because the banks have
reached their limits under the fractional reserve system.  This is the
reason for the contraction of credit and not as one commentator has
postulated that Basel III would “contract credit”.

Two burdens are weighing down on the banks:

1)    inadequate capital to meet liabilities (borrowings); and

2)    inadequate reserves under fractional reserve banking.


This is a big mess!


THE CONFIDENCE GAME

At this moment, I cannot give a precise time-line as to how long the
FED and the global central banks can prolong the confidence game,
hoodwinking the public and sovereign creditors that all is well.

When confidence in banks evaporates for whatever reasons, the
consequences will be ugly and there will be massive social upheavals
across the globe.

The first indication that the game is up is when US treasuries are
increasingly purchased by the FED to make up for the shortfalls by
foreign creditors and to finance the ballooning US deficits.

All of a sudden, some entities may start to get real nervous and
unload the treasuries, and the FED steps in to shore up treasuries.
Then, the tipping point is reached and Hell breaks loose!

China is also part of this confidence game.

But, contrary to IMF and other renowned economists who are betting on
China’s and Asia’s so-called economic strengths, I take the view that
when US treasuries collapse, faith in all fiat monies will likewise
evaporate and there will be massive capital flight to commodities,
especially gold, silver and oil.

Asian stock markets will be devastated and there will be volatile
gyrations in currency values.

Therefore, it is utter lunacy and recklessness for the Malaysian
central bank (Bank Negara) and the government to even consider
allowing the ringgit to be traded.

When confidence in dollar assets vaporises, China will be caught right
in the middle. The third and final phase of the Global Financial
Tsunami will devastate Asian economies and with it, the greatest
depression in history will ensue.

Time Line?

Between now and anytime in 2011.

At the latest, 2012.

God help us.

NEW BOOK FROM GLOBAL RESEARCH
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The Global Economic Crisis

Michel Chossudovsky
Andrew G. Marshall (editors)



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