Friday, November 19, 2010

The risk of failure

Years ago the Basel Accords was promulgated to allow banks in Europe, who better assess financial risk, to keep less monetary reserves. In other words, if the bank could have a better handle on their information so they could methodically assess risk of delinquency, then they would be required to kept smaller reserves. In essence, the more the banks knew about their loan portfolio the less risk of failure and the less money they needed to keep in case of a problem. The upside was that they could use more of the money they took in to do more loans and make more money so information could have real business value.

Anyway, I have been watching the Greek and Irish banking crisis for months. Months before that I watched as the Bank of Iceland hung in the balance. I still thought they used fish as currency in Iceland. Anyway, I’m wondering if they all ignored the Basel Accords or did bad analysis or maybe it just failed.

Are You kidding me.