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Too Big To Fail Isn't Too Clever To Regulate

The New Indian Express Kollam

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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.

MEER VERHALEN VAN The New Indian Express Kollam

The New Indian Express Kollam

'United' MahaYuti to contest BMC polls

WITH the Thackeray cousins, Uddhav and Raj, reportedly warming up to each other and hints of a possible alliance in the upcoming BMC elections, the BJP is disinclined to go solo and favours the MahaYuti constituents contesting together to avoid splitting Hindutva and pro-government votes.

time to read

1 mins

October 23, 2025

The New Indian Express Kollam

MINDFUL METROPOLIS

Here are five options to experience and explore Singapore's spiritual culture and way of living...

time to read

3 mins

October 23, 2025

The New Indian Express Kollam

Only joint secy, DGP can order removal of social media content

Labels for deepfakes, Al-generated content

time to read

1 min

October 23, 2025

The New Indian Express Kollam

PSG score seven, Barca hit six on a goal-filled night

PARIS Saint-Germain scored seven, Barcelona hit six and Erling Haaland struck his 24th goal of the season on an actionpacked night in the Champions League.

time to read

1 min

October 23, 2025

The New Indian Express Kollam

25 Bhairav Light Combat Battalions likely to get ready within six months

THE Indian Army’s transformation plans will reach a new milestone with specialised Bhairav Light Combat Battalions set to be fully operational soon.

time to read

1 mins

October 23, 2025

The New Indian Express Kollam

The New Indian Express Kollam

A tribute: Naroditsky touch in chess lessons

FOR over two weeks in Singapore at the World Championships last November and December, GM Daniel Naroditsky had inadvertently become my eyes and ears.

time to read

1 mins

October 23, 2025

The New Indian Express Kollam

'India conceals, Trump reveals,' says Cong on US Prez's Russian oil claims

THE Congress on Wednesday used a phone call from White House greeting Prime Minister Narendra Modi on Deepavali to take a swipe at the Centre. The attack came after US President Donald Trump repeated his claim that India is “not going to buy much oil from Russia”.

time to read

1 min

October 23, 2025

The New Indian Express Kollam

BIHAR LEADERS FACE YOUTH TEST

WITH the Bihar election campaign gaining steam, the spotlight is increasingly focused on three key factors—the caste calculus, alliance chemistry and women’s vote—that past elections have highlighted.

time to read

3 mins

October 23, 2025

The New Indian Express Kollam

EC initiates talks with states for nationwide SIR rollout

THE Election Commission of India (ECI) on Wednesday began a two-day meeting with Chief Electoral Officers (CEOs) from all the states and the Union Territories (UTs) to review preparations for the nationwide Special Intensive Revision (SIR) of electoral rolls.

time to read

1 mins

October 23, 2025

The New Indian Express Kollam

Coach Srinath backs Praggnanandhaa, Erigaisi at chess World Cup

GRANDMASTER Srinath Narayanan, who was the coach of the India team that won gold at the 2024 Chess Olympiad, felt both R Praggnanandhaa and Arjun Erigaisi would have a great chance to lift the title.

time to read

1 mins

October 23, 2025

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