Comments on: How can a bank with over 2 trillion in assets fail?

By: bankelele

bankelele — Mon, 24 Nov 2008 06:54:01 +0000

what’s the off-balance sheet exposure for Citi?

By: Colin

Colin — Sat, 22 Nov 2008 05:27:04 +0000

Andrew .. thanks for that. I hoped someone would stop by on this. Re not bankrupt, I was using normal accounting criteria as opposed to Basel, but I certainly take your point.

Again much appreciated.

By: Andrew

Andrew — Sat, 22 Nov 2008 01:16:14 +0000

Colin,
The Basel calculation is risk weighted assets, and several liabilities and elements of quasi-capital count as capital for Basel purposes. A 6% raw capital figure, as you have calculated, probably equates to about 10 or 11% Basel I calculated capital. They have not (yet) begun to calculate capital on a Basel II basis.
Additionally, the magic number for Basel purposes is 8%. The regulators would be expected to move in if the Basel calculated capital was to look like dropping below that. Even at 3.7% they would only be (too) thinly capitalised, not bankrupt.

By: Colin

Colin — Fri, 21 Nov 2008 19:53:30 +0000

Nice comment Guillaume – thanks for stopping by and the future oriented insight.

By: Guillaume Lebleu

Guillaume Lebleu — Fri, 21 Nov 2008 18:58:56 +0000

Yes, essentially the US money system is designed such that profits are privatized and losses are socialized. It’s not something that’s the result of the recent greed (although greed helped bring it to crazy levels this time), but simply the result of the 1913 Federal reserve act and Basel agreements which allowed to put things off balance sheet.

Time for financial system alternatives indeed. I’m putting an s because I really hope we will have an Internet-like money system – decentralized and resilient to failure – rather than an AOL-like money system.

Most importantly, “money” must be taught in high-schools.