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I'm Simon Samuels.
I'm a Banking Consultant
having spent
the last quarter of the century
analyzing the European
banking industry
from an equity
investor's perspective.
And I'm going to talk about
the challenges
of the leverage ratio.
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Most major banking systems
are essentially shaped
by the regulatory framework
in which they operate.
And one of the features
of the banking system
before the onset
of the financial crisis
was that the banking system,
particularly in Europe,
was huge.
Banks in countries like Iceland,
Ireland, Switzerland, and the UK,
with four, five, six, seven,
seven, eight times
the size of
the underlying economies
in which they operated.
Whereas by contrast,
banking systems
in the United States
and other countries
were dramatically smaller.
One of the biggest drivers
of that difference
is the regulatory framework.
Put very simply, banks,
typically in Europe,
didn't really care about
their total assets.
They were very much
focused on their,
so called, risk-weighted assets,
that is their assets adjusted
for the different
perceived levels of risk.
That was what the regulators,
their managements,
their shareholders
were primarily focused about.
And so the fact that
the European banks
have enormous balance
sheets essentially
was of little concern.
By contrast, the regulatory
framework of banks
in the United States was one
that was primarily about
the overall size of the balance
sheet, the total assets.
So U.S. banks
essentially cared about
their balance sheets,
total assets,
and didn't really care about
the risk-weighted
asset equivalents,
whereas the banking
system in Europe
was essentially the opposite.
And one of
the consequences of this
is that
the financial architecture
in these two countries
grew up very, very differently.
