Our negotiator hints that a new wave of economic expansion is possible, by simply eliminating the Capital Buffers all across the board.
What is a simple concept of "buffer" above the capital requirement, is now considered an increased capital requirement and an excuse to more than double or even triple it with the surcharge in the case of Global Systemically Important Banks (GSIB)
For instance, this is why JPS posted a CET1 of 14.3% when the capital requirement is just CET1 = 4.5% of RWA. This is because with the capital buffers, the total is 12% (estimated to be increased to 15% with the proposed capital standards now in place)
What it looks like is that JPM leads the future amendments to the capital requirements because Jamie Dimon doesn't want risk exposure, that is, invest in America, and not the other way around.
For instance, JPM posts $1.4T in cash and marketable securities, but the excess of High Quality Liquid Assets (HQLA) over the Liquidity needs that I guess refers to a 1-year period (Liquidity Coverage Ratio = 112%), is just $252B.
First, JPS should reinvest the $252B excess right away in assets with more risk exposure.
Second, figure out how to reduce the 1-year liquidity needs to increase this pot (For instance, offering 2-year or 5-year deposits, or issuing bonds beyond 1-year maturity)
So, more than $1T could be freed up to invest in assets with more risk, rather than currently invested in Treasuries, MBS or the fraudulent scheme of the Federal Reserve that grants the banks a 5.4% rate in reverse repo operations and also on Reserve Balances (IORB rate), when the latter has always been 0% for legal reserves.
First and foremost, the banks must comply with GAAP, because the Fed is to blame of the current accounting fraud with the investments in debt securities held in HTM Portfolios, instead of being recorded at fair value, either as Trading securities or AFS securities.
Along with the CECL accounting standard, all the expected losses would have been accounted for on a determined date.
Also, it's been proposed a change in the risk-weight of mortgages, because currently there is a flat 50% weight, instead of being related to the current LTV like FnF.
Then is when we start a debate about capital ratios to absorb unexpected losses.
With the Capital Buffers so high, it seems that you are protecting the actual capital from ever bearing losses, which is the reason why it exists to begin with, as any item is recorded as capital due to its loss-absorbing capacity. It's not a picture hung on the wall. And I'm referring mainly to the high yield Preferred Stocks, recorded as AT1 capital for a reason, they absorb losses with the dividend suspended upon undercapitalization. It can't be a security for the extortion of resources with a higher yield than similar obligations forever, for the enrichment of the institutional investors that usually buy these things. Because, another conundrum is why these JPSs are never redeemed at some point and substituted for Retained Earnings.
This way, the regulators focus on their job of overseeing Liquidity and Capital Levels, and to impose Prompt Corrective Actions upon:
-Undercapitalized: dividend suspended
-Significantly Undercapitalized: Capital Restoration Plan
-Critically Undercapitalized: Conservatorship for the financial rehabilitation and the management is ousted.
A prohibition to consider a Deferred Tax Asset valuation allowance is a must, the excuse used by Goldman Sachs' H.Paulson and the FHFA to reduce the capital in FnF big time in 2008 to increase the draws from Treasury. So much for rehabilitation.
A Capital Buffer would be useful to create a rule for the Payout Ratio and limit the amount of Net Income distributed to the Equity holders as dividend. For instance: a Capital Buffer equal to 100% of the capital requirement. Then, it's split in tranches for different payout ratios, like FnF today in their Table 8.
So, each financial institution will have the capital buffer it wants, based on the management's assessments about the future, not by low profile officials more interested in manufactured crisis to feed their cronies lying in wait or in making the banks buy Treasuries, so more Municipal jobs are created (first responders, etc.) A Soviet regime instead of a productive economy led by the private sector.
