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Bank Regulators Retreat, Basel III Capital Rules Edition: Seven And A Half Things To Know

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BASEL III CAPITAL RULES
Bank of England Governor Mervyn King led the regulators who caved on Basel III capital rules for banks. | AP

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Thing One: Banks Win Again, Basel III Edition: Once again, regulators have heroically stood firm against relentless bank lobbying, not wavering in their demands that banks reform their practices to prevent another financial crisis.

Ha ha, just kidding, of course: If it's Monday, then the banks have just won another round against their regulators.

The international arbiters of the so-called Basel III bank-capital standards have finally cracked under bank pressure to tweak several aspects of their new capital rules, including expanding the definition of what constitutes safe bank capital to include stocks and AAA-rated mortgage-backed securities.

Let's let that one sink in for a moment, shall we? When you think back on the financial crises and market crashes of the past baker's dozen years or so, two of the absolute least safe asset classes in the Milky Way galaxy have been stocks and AAA-rated mortgage-backed securities. Now these will be counted towards a bank's safety cushion. Arguably they're "liquid" because there's a lot of them, and they're probably going to be easier to sell than, say, CDOs or Greek sovereign debt. But when everybody's heading for the market exits in a crisis, nobody's going to pay anything close to full price for those things, if they want to buy them at all, making them a good bit less safe.

But that's not all banks have won: Now, according to regulators led by Bank of England chief Mervyn King, doomsday-prepping banks will only have to prepare for a world in which they lose 3 percent of their retail deposits, down from 5 percent as originally proposed. And the icing on the cake is that banks will have four years to gradually phase in these onerous new requirements, as opposed to a hard start on January 1, 2015. That means new capital rules will not be fully in place until the start of 2017, or more than nine years after the crisis.

King -- the eagle-eyed regulator who claimed not to have realized Libor manipulation was happening in London until Tim Geithner told him about it in 2008 -- insists the new Basel III rules are still tough. Banks argued that without these changes they would just be too burdened to do any lending to help the global economy. They did maybe have a point that the prior version of the rules relied too much on sovereign debt. But this is the latest of many retreats by regulators following the crisis, even as the banks demonstrate on a near-daily basis why tougher regulation is needed: Today, for example, we could get a long-awaited $10 billion wrist-slap for the industry over alleged abuses in mortgage foreclosures.

Thing Two: Whoa, Whoa, One Regulatory Settlement At A Time, Please: Adding an exclamation point to the need for bank regulation, Bank of America this morning got out ahead of that $10 billion mortgage-foreclosure settlement with another regulatory settlement of its own. The bank is going to pay Fannie Mae $3.6 billion to settle claims that it knowingly jammed the government-backed mortgage company with toxic loans. The bank said it will also buy back $6.75 billion in mortgage loans.

Thing Three: Ceiling Watch! While everybody's still breathing big sighs of relief over partially dodging the big, fake crisis of the fiscal cliff, we are rushing headlong to a real crisis of a government shutdown and debt default in a couple of months. Yesterday, Republicans took to the morning talk shows to spread the word they weren't going to be debating taxes any more in talks over a trifecta of trouble hitting soon, including the approaching debt ceiling, the expiration of the latest federal budget and a bunch of big spending cuts left over from the fiscal cliff. One congressperson even declared that it was time for a good old fashioned government shutdown like in the 1990s, because that worked out so well for Republicans (hint: it didn't).

This, naturally, sets Republicans on a collision course with President Obama and other Democrats, who are kind of hoping that any deal matches spending cuts with more tax revenue, the Wall Street Journal writes. There certainly may be more tax revenue available out there, particularly in the form of corporate tax breaks originally meant for farmers that are now used all of the time by giant companies to get deductions for routine business costs like equipment upgrades, the New York Times writes.

Thing Four: Can't Spell 'Flipping Hamburgers' Without 'MBA': Going back to school for that MBA is not exactly the ticket to a higher paycheck, according to the Wall Street Journal, which notes that pay for newly hired MBAs has been stagnant for the past three years. Not to mention that you'll suddenly have tens of thousands more in student-loan debt.

Thing Five: You Say 'Forced Labor' Like That's A Bad Thing: China will reform its practice of sending petty criminals and political prisoners to forced-labor camps, according to state-run media. It's unclear what that reform will entail, though -- earlier, there were reports that an official had said the entire system would be scrapped, according to Reuters.

Thing Six: The Switches Have Eyes: The Los Alamos nuclear weapons laboratory recently replaced some of its network components after finding switches made by a Chinese company under scrutiny for its ties to the Chinese government and military, Reuters reports. The finding raises concerns about the security of the U.S. government's procurement process, according to Reuters.

Thing Seven: Offices Filling Slowly: Demand for office space is still struggling to recover from the recession, growing at a notably slow pace in the fourth quarter of 2012, the Wall Street Journal writes. Usually office-space demand bounces back sharply following a recession, the WSJ notes. Maybe that has something to do with the four million jobs lost during the downturn that still haven't been filled.

Thing Seven And One Half: Hope Tyler Durden Doesn't Get Ahold Of This Guy's Soup: Anybody who's ever worked for tips will appreciate this one: Posted at Reddit yesterday was a picture of a neatly printed apology note that a customer left his server in lieu of money, saying he wished he could have left a tip, but Obamacare made it impossible. (h/t Michael Dougherty)

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