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Too Big To Fail Isn't Too Clever To Regulate

The New Indian Express Kollam

|

August 20, 2025

With debt driving the economy, banks have become powerful. They often use their influence to chip away at the curbs imposed. Regulators need to be better equipped to make them toe the line

- SATYAJIT DAS

Stricter banking regulations known as Basel 3, introduced after the 2008 financial crisis to strengthen the global financial system, are now being systematically weakened. Understanding how regulatory 'sausage' is made gives insights into the problems.

Banks facilitate payments, accept deposits and provide credit and risk management tools. Deregulation and the drive for size and profitability have led banks to expand into underwriting securities, insurance, asset management and trading.

The risk of banking is simple. Unlike funds, banks guarantee the return of deposits. Losses from loans or other activities can jeopardize their ability to meet obligations. High leverage (10-12 times) exacerbates this risk. Banking involves maturity transformation. Deposits have shorter maturities than assets, meaning simultaneous large withdrawals create liquidity risk. Mismatches of maturities can expose the bank to rate fluctuations.

These risks can be addressed by less leverage with banks holding more capital, maintaining liquidity reserves and reducing maturity mismatches. Riskier activities, especially trading, can be restricted or supported by high levels of shareholder funds. Basel 3's attempts to do this were unnecessarily complicated.

Equity, which encompasses many types of securities, is supplemented by a separate leverage ratio. Capital calculations often require arbitrary and subjective differentiation between risks. Banks must meet a liquidity ratio and net stable funding ratio. For off balance sheet instruments, like derivatives whose risks are difficult to estimate, there is a bewildering mix of central clearing, collateral and counterparty risk charges. Trading exposure is measured by complex formulas. Proprietary trading is theoretically restricted. Banks must prepare 'living wills', a funeral plan for unwinding transactions in the event of failure.

FLERE HISTORIER FRA The New Indian Express Kollam

The New Indian Express Kollam

The New Indian Express Kollam

A RIVER REMEMBERS: MEANDERING MEMORY OF WATER

BENEATH the calm surface of a river lies an ancient intelligence — one that remembers every bend, flood, and wandering path it has ever carved through the Earth.

time to read

2 mins

October 22, 2025

The New Indian Express Kollam

10 months on, NMC yet to act against 30 docs for 'sponsored' foreign trips

THE National Medical Commission (NMC) is yet to take any action against 30 doctors who accepted free trips to Monaco and Paris worth ₹1.91 crore last year, despite the Department of Pharmaceuticals (DoP) recommendations that action should be taken against them for violating professional misconduct.

time to read

1 mins

October 22, 2025

The New Indian Express Kollam

The New Indian Express Kollam

MP uses chopper-driven technique to protect crops from blackbucks

THE Madhya Pradesh forest department has initiated a helicopter-driven boma technique to capture herds of blackbucks and neelgais and shift them to wildlife sanctuaries and tiger reserves of the state.

time to read

1 mins

October 22, 2025

The New Indian Express Kollam

Price rise no deterrent, temples glitter in gold offerings

EVEN AS gold prices surge to record highs, Kerala's temples continue to glitter with the devotion of followers.

time to read

1 mins

October 22, 2025

The New Indian Express Kollam

The New Indian Express Kollam

7 Punjab youths duped in Kazakhstan, appeal for help

SEVEN young men from Punjab’s Ropar district are stranded in Kazakhstan after a local travel agent allegedly duped them by promising high-paying jobs as drivers.

time to read

1 mins

October 22, 2025

The New Indian Express Kollam

Adding caution to traffic lights

GARRETT MORGAN

time to read

1 mins

October 22, 2025

The New Indian Express Kollam

The New Indian Express Kollam

Speaker appoints lawyer to assist panel probing Justice Varma graft case

LOK Sabha Speaker Om Birla has appointed advocate Karan Umesh Salvi as a consultant to assist the judges’ inquiry committee investigating allegations of corruption against Justice Yashwant Varma.

time to read

1 min

October 22, 2025

The New Indian Express Kollam

Post-Diwali air quality in Delhi worst in 4 years

Revellers flouted time limit for firecrackers

time to read

1 mins

October 22, 2025

The New Indian Express Kollam

Relief as $1L H-1B fee does not apply to US visa holders

A month after US President Donald Trump’s proclamation jacking up the fee for H1-B visas to a steep $100,000 caused panic among international students and professionals, the US government has now clarified that the fee won’t apply to most current visa holders and recent international graduates.

time to read

1 min

October 22, 2025

The New Indian Express Kollam

WASTE LAND: A NATION OF LANDFILLS

SOME years ago, I was editing a newspaper in Mumbai and we ran a report on the city’s eternal garbage problem.

time to read

3 mins

October 22, 2025

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