August 28, 2013
Understanding Wall Street Fines & Basel Developments
Posted by David Zaring
  • The $160 million paid by Merrill Lynch to settle its bias case is in some ways a landmark, and in other ways puts the whole fine culture on Wall Street in mysterious perspective.  It's the largest such settlement ever, and yet a much larger ($550 million) settlement by Goldman Sachs in the wake of the Abacus case was thought to be a slap on the wrist.  I eagerly wait an explanation of the transitive properties of settlement penalties.
  • The international financial regulatory deals realize their enforcement through peer review and reports to the G20.  Here's Basel's latest example, assessing the state of compliance with its capital accords.  The US is assessed to be only semi-compliant with Basel II, and making progress on implementing Basel III.  If you want to know the three elements of Basel III that the Basel Committee thinks are the important ones, then you can find out here; the table that comprises the bulk of the report focuses on only three elements.  It reports on compliance with the G-SIB process (identifying and adding capital requirements to Global Systemically Important Banks), the Liquidity Coverage Ratio (requiring banks to keep a percentage of assets in cash or very short term debt), and the Leverage Ratio.  The capital requirements are monitored through compliance with Basel II and what the committee calls 2.5.

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