The banking regulators insist on a new international standard for credit risk assessment, which would ensure that efforts to strengthen the global banking system will not fall prey to the weaknesses caused by disparities in national standards. The British regulators are calling for reform in how to calculate risk-weighted assets (Risk-Weighted Assets, RWA). The RWA denominator used as a key indicator of banks’ capital position – the ratio of tier 1, the numerator is the main capital. The international regulators by the Basel Committee on Banking Supervision adopted reforms, known as Basel III, in order to harmonize the definition of fixed capital. However, almost nothing was done for the standardization of RWA.
“This is an extremely important issue,” said Lord Turner, chairman of the British regulator Financial Services Authority. “We’ve enough time in the past two years to standardize the definition of capital as the numerator in the ratio of capital adequacy. Now we must look deeper consideration of the denominator, assessing whether the calculation of risk weighted assets was comparable in different banks in different countries.”
The incorrect calculation of risk-weighted assets may greatly distort capital ratios and potentially undermine the idea of ​​introducing a global minimum value of the ratio of capital adequacy. Basel III requires tier 1 banks in the world is at least 7%. Andrew Haldan, the CEO of Bank of England said that the freedom granted to banks by the national regulators in the determination of RWA, and in particular in defining the criteria for “likelihood of failure” of the borrower may be inflated capital adequacy ratio by one third.
Read the full story

Some would say that Mother Nature is the best allocator of assets, if seen in a long enough time horizon. Departing from this allegation, it could be argued that silver is very undervalued compared to gold. According to the author of “The Little Book of Commodity Investing” of John Stevenson in nature, there are 16 times more deposits of silver than gold. However, the price of gold is 38 times higher than that of gold. The current price of silver is about 37 dollars an ounce, while gold traded at around 1,420 dollars an ounce. According to basic laws of supply and demand, especially in view of the fact that both metals have similar application, the difference in their prices should be much lower.
“Silver has virtually the same physical characteristics as gold – it is a means of preserving the value and has limited application in the industry,” said Stevenson, who is a portfolio manager at FirstAsset Management in Canada. “For my money deal of the decade will be silver. Gold was the best investment for the past decade, but silver will be the means by which investors can overcome these storms in the global economy, “he said. Over the past decade gold has appreciated five times for directing investors to safer assets. Initially, the gold rush was because the desire to prevent a bear market, but later it was used for protection against inflation because of downed near zero interest rates in developed countries.
Read the full story

U.S. mutual funds investing in equities, with the lowest percentage of its assets in cash from 2007 onwards. In January, the share of the cache has fallen to 3.6 percent from 5.7 percent a year earlier, according to the Investment Company Institute. This is the biggest drop of the indicator in the past 18 years. Currently, managers have available funds in the amount of 172 billion dollars. The last time the managers behaved as a small percentage of cash was in September 2007, a month before the broader index S & P 500 to start 57% decline. The index has lost an average of 16% over the last three times, in which managers are beginning to increase their reserves of cash. The reason for this is that the cache is often due to increased sales. In this situation, when reserves have reached the opposite pole, it is assumed that the growth potential has been exhausted. According to the investment company Parnassus Investments growth stock will fall after last year S & P 500 rose by 23%. For the past 12 months did it rose by 67 percent in a remarkable year for U.S. exchanges. “This is not a red semaphore, but it is flashing yellow, which warns that the strongest part of the recovery of the market probably is over,” said Jerome Dodson, managing 3.6 billion dollars for Parnassus Investments. According to him this year S & P 500 will rise by between 6% and 9%. “There is only so much buying power of the market,” he said.
Read the full story

Sovereign wealth fund Dubai World, which again is bound to lead to tensions in financial markets, will propose plans to restructure its debts. The intention of the Fund are to seek warrants for conversion of debt to 22 billion dollars. One option is for every dollar debt fund to return 60 cents, transmit Market Watch, citing sources from the country. This will happen after a period of seven years and within this period will be paid principal and interest. Only interest would be paid in the last year, and the government of Dubai will be the guarantor. The second option, which is expected to be proposed, provides for obligations to creditors to be made in full, but by assets and shares of the division of the Dubai World Nakheel. The company specializes in construction and is the creator of ambitious projects such as palm and The World. “We think that banks would probably accept the first proposal,” it said in a message of Credit Suisse. According to financial institution creditors are expecting such a development and recovery of 50-60% of their loans to the fund. While it seems unattractive for banks that option is better than bankruptcy, indicated by Credit Suisse. The reason for this is that bankruptcy financial institutions will have to classify 100% of its exposure to the fund as a bad loan, as it happens around 40% of the position. From an accounting point of view it is more profitable, think of the bank.
Read the full story