WASHINGTON (TheStreet) -- Federal bank regulators have found a way to solve the European debt crisis: Allow U.S. banks to buy up Greek bonds.
According to the Proposed Rule on Risk-Based Capital Standards jointly announced Friday by the Federal Reserve, the Federal Deposit Insurance Corp., and the Office of the Comptroller of the Currency, there is no chance of a sovereign default by the Hellenic state and therefore make a perfect place for U.S. banks to story their previous capital.
|The regulators say it can't happen.|
The regulators are required under the Dodd-Frank Wall Street Reform and Consumer Protection Act -- signed into law by President Obama in July of last year -- to move away from relying on ratings agencies when setting capital guidelines for large banks, but it would appear that the ratings agencies actually provide a more conservative approach.
Banks are required to determine how much capital must be set aside to protect against losses on various asset classes.Assets that are considered the most safe, such as direct obligations of the United States and many other countries have a zero risk-weighting, while riskier assets, including loans, mortgage-backed securities and non-government bonds, have much higher risk-weighting, depending on the underwriting standards, for loans, and the ratings of Standard & Poor's, Moody's, or Fitch, for securities. The federal regulators propose to base risk-weighting for sovereign debt investments on Country Risk Classifications (CRC), for countries that are members of the Organization for Economic Co-operation and Development (OECC). For countries with no CRC assigned, the risk-weighting would be 100%. The risk-weighting for sovereign debt issued by OECD members with CRCs of zero or 1, would be zero. For OECD members with a CRC of 2 the risk-weighting would be 20%. For members with a CRC of 3, the risk-weighting would be 50%. For CRCs ranging from 4 to 6, the risk-weighting would be 100%, and for a CRC of 7, the risk-weighting would be 150%. The federal regulators said that "to alleviate concerns about potential misclassifications, the agencies are proposing to apply a specific risk-weighting factor of 12.0 percent to sovereign debt positions where the sovereign has defaulted on any exposure during the previous five years." This means a bank would have to set aside capital totaling 12% to protect against default.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV