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Basel 3 Are Laws To Prevent A New Financial Crisis?

Basel 3 Are Laws To Prevent A New Financial Crisis? The new rules, set by the heads of central banks and those responsible for the financial authorities in the Swiss city of Basel, last week, will become valid laws after approval by the meeting of the «G20» in November (November) this year. Among other amendments demanded by the leaders of the «G20» for approval at their next meeting:

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> Oversee more precise on the local and international banks.

> Centralized organization and unification of the derivatives market (Derivatives) by 2012.

> Get ratification for the establishment of investment hedge funds (Hedge Funds) that exceed a certain amount of capital funds, as these funds would be obliged to disclose their accounts to the supervisory authorities on a regular basis.

> Drafting a European law to organize the work

Private investment funds, which come from outside the EU, and is seeking investors from inside the Union.
> Unify laws «accounts and accounting» (Accounting) at the international level by the middle of next year.

> Enact legislation in the banks stopped granting incentives for workers and managers who stance sanctions the deals and loans to high-risk, especially if they are short-term.

> Register and organize the work of «credit rating agencies» (Credit Rating Agencies).

In the United States, it issued three largest banking regulators – the Federal Reserve and the insurance company on the Federal Deposit Currency and the Office of control – a joint statement in which it declared that the agreement is an important step in reducing the rates of future financial crises. As commented US Treasury Secretary, Timothy Geithner, the agreement saying: «We welcome this step on the road to a strong global financial reforms and look forward to reviewing the details of these proposed reforms with the requirements of global capitalism». For his part, the head of the European Central Bank, Jean-Claude Trichet, said that the agreement is «to strengthen the global capital standards, though the transition period arrangements will enable banks to meet the new requirements without reducing support economic recovery».

* Credit crunch is the reason

* Three years ago, the world had never heard «credit crunch» words (credit crunch), but today the term has entered the economic dictionaries. It means in short: a great shortage of liquidity at banks. Although economists have chosen a specific date for the beginning of the crisis (of 9 August 2007, when French bank announced a huge increase in interest rates on loans granted by the price), the beginning of the crisis was in the United States before the period from this long history. As economists always say: «When the United States sneezes, the rest of the world gets a cold.»

During the years between 2004 and 2006, the United States lifted the price of basic usefulness again and again, up from 1 per cent to 5.35 per cent. The result was that a large number of Americans failed to pay monthly on their loans, which they bought their homes premiums. Yet their failure to pay the start of the liquidity crisis in banks loomed, especially those that were granted loans of hundreds of thousands with ease, without checking the customer’s ability to repay these debts. In most cases, banks impose higher prices for the interest on these loans, which note that the owners can not get loans in the normal way and at normal interest rates.

* Easy lending and risks

* Of course, banks have been forced to endure these loan losses, known as «bad debts» or «bad debts». The loans are easily granted without the scrutiny of the financial capacity of the client grew and spread rapidly in the western markets, so that became known as the own «sub – prime», specializing in some banks. Perhaps prompting banks to facilitate the granting of loans is a competition among themselves to «kidnap customers from the market» before they go to another bank. Each bank was trying to get the largest number of customers, and then a larger share in the market.

With the beginning of 2007 the size of «risky loans» reached its highest level ever, prompting some financial experts to warn of the danger of lax lending policy, and the potential impact on the stability of the financial system in general. This is what actually happened in the spring of that year.

In April 2007 announced «New Century Financial» US, which specializes in the undemanding loans, bankrupt institution. This was the first indication to the world that lax loan market sub – prime already suffers from a serious crisis. But in September 2008 it announced the bank «Lehman Brothers» American giant, aged 150 years of bankruptcy, the same day announced «Merrill Lynch» Bank, which is not as vast and important as he accepted an offer from «Bank of America» to seize it. He said our advertising on two of the worst days of the crisis and the beginning of the truth, because of the size and the nobility of the two banks.

In this regard, he said the «Middle East» financial expert Allen, from «HSBC» Bank of the psychological factor is obvious is waning investors and traders and consumers’ confidence in the financial markets and the banking system in general. He added: «Who would have imagined that the large financial institutions, such as Bank (Lehman Brothers) and (Merrill Lynch) Stthaoy». Lack of confidence in investors and individuals is not limited, but the banks themselves have become not trust each other, so it has tightened lending policy among themselves .. and this is the reason for the problem already. Banks have become afraid to lend to any bank and then discover the next morning that he’s in store for «misfortunes» among its books of account, and it may fail to repay, or even fall apart, between overnight.

For his part, Kelly Turner endorsed the «First Action» Finance Corporation, the «Middle East» The view of the Tailai, adding that restoring confidence usually takes a long time even after cleared crisis «just like the fear does not come from the hearts of people in the wake of the exposure to the hurricane, even after they leave their hurricane long weeks. » This is what the new Basel rules seek to achieve now, any restoration of confidence in the banking system.


* Is a free market economy needs to see his theories?

* The idea of ​​a free economy on the lack of state intervention in the market. It is intended not to intervene here is that the state does not intervene as a seller or a buyer, but, of course, retain its role as an observer and lawmaker for phrase economic activity in the country. Contrary to the idea of ​​a free economy, some states practiced the idea of ​​a centralized economy in which the state owns the means of production and large companies and public services and vital facilities, and of course there are some countries that have confused between the two systems, or what is known as the joint economy.

And through modern history, the United States has been leading the idea of ​​free market economy in which the state leaves the vast majority of economic activity to the private sector in accordance with the philosophy that «that the market adjusts itself.»

Even Europe, which also apply to a market economy, did not reach the level of the United States before it begins to allocations led Britain during the reign of former prime minister, Margaret Thatcher, in the eighties of the last century, when Europe began to sell companies that were owned by the State to the private sector. Britain, followed by Germany and France, which the state still owns two large companies and service facilities.

And despite the fact that Western Europe considers itself a capitalist basis, many of the ideas of socialism (a command economy) leaked after the First World War to the many corners of their economic activities, so that their economies have become a common economy between the private and public sectors. Of course, the degree of mixing that vary from state to state, France, for example, were more mixed than Britain, Germany, and the state in which more control of the economy from the private sector.

On the edge contrast to Europe, there were socialist countries (the Soviet, China and Eastern Europe), where countries have all the means of production, does not allow private any economic activity for the sector, the state-controlled central to all economic and financial activities, to some extent determine the currency exchange rate, but to identify vegetable prices in the market. In contrast, the state was in the United States do not have something, even companies vital facilities – such as water and electricity – was a private sector (unlike Western Europe, which was until recently the state owns these companies, but airlines and shuttle buses and public trains).

However, the financial rescue plan adopted by Western governments during the recent financial crisis is the biggest intervention of government authorities in the market since the crisis «Great Depression» in the thirties of the last century.

So it raised some Western economists fears that the country may be on the cusp of «the era of state contribution», which is a historic turning point size remains subject to the consequences of the application of the rescue plan and state ownership of the shares of a number of banks. Admittedly plan in which the government paid hundreds of billions (not a donation, but in return for shares in troubled companies), the State is the owner of large stakes in financial institutions and many companies, which means they will benefit from the profit and loss which these companies in the future, meaning that the state Her business interests will be in the market to compete with other companies with private ownership of one hundred per cent.

Government rescue plans also put two conditions are important for the contribution of the state in private companies, namely First: not to be Treasury contributor to the others as soon as they enter the capital of the company, with the benefit of specific guarantees to ensure not losing the size of their participation in the event of increased capital of the company or merger with another company . Secondly, that the state can not be lost. After five years will be on the US president then submit a draft law imposing fees on the financial sector equivalent financial losses to the state, in the event of loss. Thus, the state becomes a contributor to the market, and preferential terms. While countries justify these actions, arguing that the money you will use in the purchase of these shares is in money, and must be protected from loss, some economists fear that this represents a fundamental shift in the role of the state in a free economy, especially that of the United States has argued a number of countries around the world, to persuade them to lift protection for its products, and open their markets to free competition.