Basel III

[crws]

Basel?

Isn't Basel running for Gubernor??

Hey FWM! Where's Basel?

Bares Weasel?!

 

[alevin]

Why are US banks rallying? The US banks by law are required to hold %10 of their holdings in reserve. Basel III requires a fraction less than what the US requires.
Emo

Don't know why the rally, Emo, but your question triggered a little sleuthing on my part. I found something interesting.....

In April 1992, it [the Fed] cut the requirement on transaction deposits from 12% to 10%. In announcing its December 1990 move, the Fed noted that the cut would reduce banks' costs, "providing added incentive to lend to creditworthy borrowers." Similarly, in announcing its April 1992 cut in reserve requirements, the Fed observed that the reduction would put banks "in a better position to extend credit." Current reserve requirements are low by historical standards. From 1937 to 1958, for example, the rate on demand deposits was always at least 20% for banks in New York and Chicago, which were "central reserve cities"—a term now obsolete.

Transaction deposits:

The Monetary Control Act (MCA) of 1980 authorizes the Fed's Board of Governors to impose a reserve requirement of 8% to 14% on transaction deposits (checking and other accounts from which transfers can be made to third parties) and of up to 9% on nonpersonal time deposits (those not held by an individual or sole proprietorship).

http://www.newyorkfed.org/aboutthefed/fedpoint/fed45.html

And we wonder why there are so many bank failures right now. The increased risk-taking with our money has gone on for decades.

 

[James48843]

Basel?

Isn't Basel running for Gubernor??

Hey FWM! Where's Basel?

 

[nnuut]

I surely don't know, but WELCOME to the Message Board.
Best of luck
Norman

 

[EmoDx]

Why are US banks rallying? The US banks by law are required to hold %10 of their holdings in reserve. Basel III requires a fraction less than what the US requires. Are the US banks rallying because if they already comply with Basel III and foreign banks don't, the US banks may have more potential clients until the foreign banks comply?

Also, if banks are calling in lines of unused credit in order to cover their new fractional reserve requirements, then less money is in circulation for clients to use. Wouldn't international companies and companies with large international exposure suffer as lines of unused credit are called in?

I am just trying to figure out if the rally is an emotional rally or if there really is something useful to stocks if there is less money in circulation. Thanks in advance!

Emo