Dear SAP Banking community members.
We discussed it here 9 months ago
http://www.linkedin.com/groupItem?view=&gid=92860&type=member&item=42746549&qid=c83550e5-8916-4036-bdc5-e02c799dab48&trk=group_items_see_more-0-b-ttl
We’re not confronting liquidity issues in a recession; we’re confronting solvency issues in a depression.
On the last three months the European regulatory authorities have changed the official statement of “No Capitalization (solvency) issues in the European Financial Systems” to “Recapitalization of the European Financial System is urgent and mandatory”.
What has happened from the summer to the fall?
Time, just time.
According to the international solvency agreements (Basel agreements, etc.), Capitalization levels depend on the calculation of the Risk Weighted Assets, which, at the end, depend on the Probability of Default of the exposures.
I’m going to be politically correct here, nobody lied when the results of the Stress Tests last year said that the Banking System is solvent and there’re no Capitalization issues. Maybe, looking at default levels in credit at the time nobody could see the catastrophe.
On the other hand, we cannot accept that the solvency levels were correctly calculated, no tsunami, natural catastrophe or asteroid collision has hit Europe in the last year.
For good or for bad, root cause of the insolvency was in the banks balances one year ago.
In my opinion, the wrong assumption in the summer of 2010 was:
“Debt is growing too fast, deficit levels are too risky, we have to start austerity programs and reduce expenses”
But then, as austerity programs were implemented, economy slowed down, and default levels rise.
Finally, Mrs. Lagarde, Managing Director of the IMF warned this week of the risk of a “lost decade” for the global economy. http://www.bloomberg.com/news/2011-11-09/lagarde-sees-lost-decade-for-world-economy-unless-nations-act-together.html
Ok, fair enough, and now what?
A depression is a very serious event; last time we faced it basic rules of global economy had to change. What is the proposal now?
It seems that now it’s the time of blaming the Bankers, even Hollywood films play its role; Inside Job, Margin Call, Money never sleeps, etc.
It’s true that debt (public and private) has grown dramatically in the last two decades, and also deregulation has permitted that growth, but for understanding what’s going on here, we have to look further.
Last time the world faced a depression, world leaders implemented a growth model based on wasting resources (oil, cupper, iron, all the commodities). Literally, the more resources we wasted, the higher world GDP we achieved.
In the 70’s, with the cartelization of the oil market, world’s economy learned that resources are limited, and then, on the 90’s growing by wasting Oil started to be hard.
Solution, let’s waste the last resource; “solvency”,
15 years later, we’re seeing that solvency is becoming scarce, end of the dream and starting of the nightmare.
Growing by wasting resources is not an option anymore, the exit strategy of this crisis is efficient use of the critical resources. Translated to the Financial Industry, efficient use of Capital and Liquidity.
From now on, Banking system is not driven by volume, it will be driven by efficiency. The efficiency paradigm comes with new questions as Capital and Liquidity are now at the center of the business planning.
Capital, Liquidity and Accounting have to be managed in a holistic way, basically what the Integrated Financial and Risk Architecture of Bank analyzer proposes.
Looking forward to read your opinions.
Kindest Regards.
Ferran.
We discussed it here 9 months ago
http://www.linkedin.com/groupItem?view=&gid=92860&type=member&item=42746549&qid=c83550e5-8916-4036-bdc5-e02c799dab48&trk=group_items_see_more-0-b-ttl
We’re not confronting liquidity issues in a recession; we’re confronting solvency issues in a depression.
On the last three months the European regulatory authorities have changed the official statement of “No Capitalization (solvency) issues in the European Financial Systems” to “Recapitalization of the European Financial System is urgent and mandatory”.
What has happened from the summer to the fall?
Time, just time.
According to the international solvency agreements (Basel agreements, etc.), Capitalization levels depend on the calculation of the Risk Weighted Assets, which, at the end, depend on the Probability of Default of the exposures.
I’m going to be politically correct here, nobody lied when the results of the Stress Tests last year said that the Banking System is solvent and there’re no Capitalization issues. Maybe, looking at default levels in credit at the time nobody could see the catastrophe.
On the other hand, we cannot accept that the solvency levels were correctly calculated, no tsunami, natural catastrophe or asteroid collision has hit Europe in the last year.
For good or for bad, root cause of the insolvency was in the banks balances one year ago.
In my opinion, the wrong assumption in the summer of 2010 was:
“Debt is growing too fast, deficit levels are too risky, we have to start austerity programs and reduce expenses”
But then, as austerity programs were implemented, economy slowed down, and default levels rise.
Finally, Mrs. Lagarde, Managing Director of the IMF warned this week of the risk of a “lost decade” for the global economy. http://www.bloomberg.com/news/2011-11-09/lagarde-sees-lost-decade-for-world-economy-unless-nations-act-together.html
Ok, fair enough, and now what?
A depression is a very serious event; last time we faced it basic rules of global economy had to change. What is the proposal now?
It seems that now it’s the time of blaming the Bankers, even Hollywood films play its role; Inside Job, Margin Call, Money never sleeps, etc.
It’s true that debt (public and private) has grown dramatically in the last two decades, and also deregulation has permitted that growth, but for understanding what’s going on here, we have to look further.
Last time the world faced a depression, world leaders implemented a growth model based on wasting resources (oil, cupper, iron, all the commodities). Literally, the more resources we wasted, the higher world GDP we achieved.
In the 70’s, with the cartelization of the oil market, world’s economy learned that resources are limited, and then, on the 90’s growing by wasting Oil started to be hard.
Solution, let’s waste the last resource; “solvency”,
15 years later, we’re seeing that solvency is becoming scarce, end of the dream and starting of the nightmare.
Growing by wasting resources is not an option anymore, the exit strategy of this crisis is efficient use of the critical resources. Translated to the Financial Industry, efficient use of Capital and Liquidity.
From now on, Banking system is not driven by volume, it will be driven by efficiency. The efficiency paradigm comes with new questions as Capital and Liquidity are now at the center of the business planning.
Capital, Liquidity and Accounting have to be managed in a holistic way, basically what the Integrated Financial and Risk Architecture of Bank analyzer proposes.
Looking forward to read your opinions.
Kindest Regards.
Ferran.
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