Thursday, November 13, 2014

13/11/2014: Irish Banks: In a Bad League of Their Own

Standard & Poor's report published yesterday (link here) offers a dark view on the French banks, arguing that their capitalisation, based on S&P own metric, puts them into a "weaker position against their European and international peers than according to regulatory ratios".

The S&P looked at the rank order of national banking systems, "resulting from the capital measure that Standard & Poor's Ratings Services uses in its ratings analysis, the risk-adjusted capital (RAC) ratio… According to the latest available comparative data on Dec. 31, 2013, the five French banks (the four mentioned above plus Groupe Crédit Mutuel) had an average RAC ratio of 7.0% versus 7.7% for our top 100 rated banks. …The gap between our in-house measure and the regulatory one (the fully loaded ratio) mostly stems from the banks' internal models for credit risk that we view as less stringent on some asset classes than for some peers. It also results from our stricter treatment than under Basel III of French banks' large insurance subsidiaries."

So in basic terms, S&P used higher quality test of capital buffers. And here are the results for the select sample of European banking systems:

One thing is clear from the above: Ireland's banking system is faring the worst - by a mile - in the sample. In fact, by S&P measure, it is in the league of its own.

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