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This has to be one of the weirdest story ever in banking regulatory matters. (Quick thread)
Last night, Coventry Building Society, a conservatively run UK bank with approx 40bn of loans, said it had miscalculated its Risk Weighted Assets.
ouuuuuh, scary you might think! Didn't it happen with Metro Bank ? And after that they were in a big s***, even unable to issue SNP debt ?
Well, before you run to get your deposit bank from the bank, I should point out that there CET1 ratio will go down because of this from...34.2% to 32.6% 😂 So pretty much still three times what's required. No worries there.
What's funny is this: they admitted what they got wrong. And tbh it's hilarious (well, for bank capital geeks anyway.) Here's the formula to calculate RWA in the Capital Requirement Regulations
Yuk, ugly formula! Surely anyone can be wrong when using it, so many complicated functions. But no no no, what they got wrong is only this: they forgot to multiply by 1.06 (the scaling factor at the very end of the formula). And they did that for every single exposure they had 🤪
So these guys have been using IRB models for more than 10 years, with the approval of the Bank of England, which of course performs regular checks on the models etc....
And no one ever realised that they had forgotten the 1.06x !!! Just thinking of the face of the intern who probably realised this .....
(God so many typos, sorry. "your deposit back" and "that their CET1 ratio")
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JohannesBorgen
@jeuasommenulle
Important development in bank capital today with #Unicredit's business plan announced. The plan itself is only relevant to Unicredit investors but a snippet inside is crucial for all banks. Quick thread..
Bank capital requirements include basic requirements, buffers (which are hotly debated these days) and so-called pillar 2 requirements which are effectively bank by bank requirements based on the bank's risk profile
Ever since the SSM became the boss, those requirements have been more transparent (something) made necessary by the MDA rules. But transparency has a drawback: it shows the massive inconsistencies of the past !
Read 11 tweets
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JohannesBorgen
@jeuasommenulle
I know you guys don’t give a s*** about the Unicaja + Liberbank potential merger (that’s two mid-size spanish banks in case you want to ask), but let me try to explain why you’re wrong and why it’s actually extremely important. Thread.
I think we can all agree one of the major effects and economic distress created by the financial crisis was the massive bank deleveraging. This was triggered by large losses but also by massively increased capital requirements (x3 more or less).
New capital raises did offset that a bit, but not enough – because raising even more capital was too painful for shareholders. The dilution is just too large.
Read 18 tweets
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JohannesBorgen
@jeuasommenulle
Also because you all love #RepoTwitter. The gold-plating of GSIB rules + LCR rules in the US certainly did play a part in the recent repo spikes. The interesting thing is that Q4 is the cutoff for the US scores. That's why JPM (& others, but JPM is the biggest) 1/n
has consistently reduced its score in 4th quarters, sometimes by as much as 40 points (out of 730ish.) Obviously balance sheet size and funding are important items (but no the most important ones) in the US GSIB score
This time, JPM has just published data that is consistent with its biggest score ever at (est.) 750. The problem is that 730 is the cutoff for the 4% capital charge instead of 3.5%. So you can be pretty sure that JPM will reduce its scores like mad in Q4....
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Leone Hadavi
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The easiest way to become Nigeria’s President is by not wanting the job in the first place. This is because, the acquisition of Presidential power in Nigeria has always followed a particular pattern...

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V K Jain
@veekay_jain
#Banking is a business of #trust. With trust gone, the biggest bank will collapse in no time.

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Dr. Nyri A Bakkalian (浪人歴史家)
@riversidewings
#Thread My talk last night with @OutlawHistorian has inspired me, so-- here is a #japanesehistory thread about ashigaru, as an introduction for those who haven't heard the term before.

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GreatGameIndia
@GreatGameIndia
#Thread

It has been suggested that Private Equity firm KKR is responsible for #CafeCoffeDay founder #VGSiddhartha's suicide.

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Aijay
@Hejeoma
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