Tag Archives: Policy

The Eurozone Crisis Will Not Go Away until Banks Face Reality

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This week’s Fall Through the Cracks Friday is an article by former FDIC Chair, and keynote for the upcoming PLUS D&O Symposium, Sheila Bair. In the full article from Fortune magazine, Ms. Bair argues that lax lending restrictions in Europe are only starting to be rectified.

From the article:

The U.S., which has tighter rules governing how FDIC-insured banks determine the riskiness of assets, requires well-capitalized banks to hold capital equal to at least 5% of total assets, regardless of how risky they think the assets are. So for any asset, be it cash, U.S. Treasury securities, or supposedly safe mortgages, banks must hold at least 5% capital against it. European banks do not have this kind of “leverage ratio,” and Basel II has allowed them to treat sovereign debt as having zero risk. That is one of the main reasons they have loaded up on nearly $3 trillion of it.

Last year the Basel Committee on Banking Supervision finally approved a still-too-low 3% international leverage ratio. Even at that permissive level, the committee’s own research suggests that more than 40% of the world’s largest banks would have to raise capital. At the same time, the European Banking Authority (EBA) is raising European banks’ common equity capital requirement to 9%, a huge jump from the Basel II standard of 2% and roughly equivalent to the new Basel III standards. But even at 9%, a large number of European banks will continue to operate at extreme levels of leverage because of their rosy views of risk.

Read Ms. Bair’s full article at finance.fortune.cnn.com, and make sure to register today to see her speak in person at February’s D&O Symposium in New York.

Federal Appeals Court Upholds Individual Health Insurance Mandate

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A U.S. appeals court on Wednesday upheld President Barack Obama’s landmark healthcare law that requires Americans to buy insurance as constitutional, an early victory for the White House.

The U.S. Court of Appeals for the 6th Circuit, based in Cincinnati, said the “minimum coverage provision is a valid exercise of legislative power by Congress under the Commerce Clause” of the U.S. Constitution.

The decision is the first at the appeals court level and legal experts say they expect the issue to ultimately be addressed by the Supreme Court later this year or next year, a critical time for Obama as he seeks re-election in 2012.

The Thomas More Law Center filed a lawsuit in Michigan the day Obama signed the healthcare measure into law, arguing the provision requiring Americans to buy coverage by 2014 under threat of penalty was beyond Congress’ authority and an unconstitutional tax.

A federal judge in Michigan upheld the law and the group appealed.

The appeals court affirmed that judge’s ruling, saying those who opt out of buying health insurance were still engaging in commerce because they were paying for healthcare services on their own and therefore the law was constitutional.

You can read the full article here on the Insurance Journal website.