[FOUNTAIN]Bank ratio now irrelevantRight after the financial crisis, the Bank for International Settlements (BIS) capital adequacy ratio could be the kiss of death to banks. It could determine whether a particular bank lived or died. Life was for those rated above 8 percent, death for those below.
On arriving at a bank, everyone asked what its BIS ratio was. A bank would have to deal with mass withdrawals of savings at even a rumor of a low BIS ratio.
Because of its influence, the Japanese critic Takashi Hirose called the BIS one of three American marvels, along with the International Monetary Fund and credit rating services. They were the weapons of the United States that brought the world to its knees in the name of “global standards.”
The Bank for International Settlements was not the bank of banks from its earliest origin. At first, the BIS was founded to collect reparation payments from the defeated nations after World War I.
The BIS ratio was born thanks to bankruptcies. In 1984, the New York-based Continental Illinois National Bank and Trust Company went under. The major cause of that collapse was that the bank’s loan to Mexico, which was hit by a foreign currency crisis, was dishonored.
The U.S. banks pressured Congress that the same regulations should be applied to foreign banks as to U.S. banks. Congress, in turn, pressed the Federal Reserve Board, and the FRB chairman Paul Volcker pushed the BIS. In 1988, after four years of effort, Mr. Volcker succeeded in spreading the BIS ratio regulation around the world, wrote Susan Strange in her book, “Mad Money: When Markets Outgrow Governments.” However, it turned out that the BIS ratio was of no use. Andrew Crockett, the general manager of the BIS, had said that making a universal standard for central banks around the world is a contradiction because each bank has its own system.
However, the BIS ratio, which had almost expired, was revived a year later. This time, the scapegoats were the Korean banks on the verge of bankruptcy. After the financial crisis, the survival of Korean banks was determined with the BIS ratio as a yardstick.
Lately, the Board of Audit and Inspection and the financial authorities have been debating over the BIS capital/asset ratio of the Korea Exchange Bank. It is a pity that they are engaged in a belated battle to avoid accountability. It does not matter whether it was 6.16 percent or 9 percent. It will not reverse the sale of the KEB. We like to say that age is just a number. Sometimes, the BIS ratio is also nothing but a number.
by Yi Jung-jae
The writer is a deputy business news editor at the JoongAng Ilbo.