July 27th 2010 – “Basel” Fawlty rides again

Just when you thought that the European bank stress tests were the ultimate farce the committee has caved in to pressure from all those allegedly “solvent” banks to water down the Basel III capital adequacy requirements.

If the originally recommended Basel III Tier 1 capital threshold of 8% is used (instead of 6%) 39 banks not 7 would have failed the tests resulting in additional impaired assets of €2.6 trillion and an additional capital requirement of €30 billion. These harsher requirements and their implementation have been put back to 2018 at the earliest.

The timing of this announcement is of course far from accidental. Whilst the tabloid press castigates the stress tests, and rightly so, the news from Basel is a teensy-weenie bit technical for your average journo to get his head around so the story won’t get on to page one where it belongs.

Bank shares have rocketed on the news; especially the French; quelle surprise! They have their money making license back at a heavily discounted rate. Over at Fullermoney (www.fullermoney.com) my dear friend David has quite rightly said that this is all part of the psychological game to reassure the markets and give the banks some breathing space to get themselves properly capitalised. However the race is now on to see how many can achieve that desirable goal before the next round of bank bailouts hits our screens.

In other words the Day of Judgment has been postponed yet again. Excuse me while I pop out and get the emperor some new clothes..