Punch-up in Basle
The Germans are at it again. Amid a big diplomatic punch-up, the Basle Committee on Banking Supervision failed to release its long-awaited consultation paper on credit risk control and capital adequacy on April 9.
According to peeved participants and observers, this is mainly because German representatives in Basle are determined to protect the special interests of their mortgage banks. As a source at Britain's Financial Services Authority says: "It was a very sticky sticking point." To get the Basle process moving again will take bilateral talks between the US and the Germans.
The Germans enjoy an advantage in three respects.
First, commercial property lending carries a 50% risk weighting for German mortgage banks; everywhere else that privilege applies only to residential mortgages.
Second, Hypotheken banks and Landesbanken can issue Pfandbriefe, which are 10% risk weighted. Banks outside Germany that buy high-quality wholesale assets and fund themselves through the straight debt markets don't have this option.
And finally the risk weighting for German banks' senior unsecured debts is 20%. But these debts are not very senior at all: they are subordinated to the claims of Pfandbrief holders.
"It makes no sense whatsoever," says a top executive at a US investment bank.