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It may seem prosaic, but one of the problems that “Western” banks have with Islamic financial structures is the question of how to account for them. Under interest-based banking it is an easy call. In most of the world, you apply IAS 39 (AASB 139 as it is called in Australia) and in the US you apply FAS 133. The problem with Islamic finance is that it does not operate in the same way and a good, hard, detailed look at the way the arrangements will actually work is called for if you are using these standards, as most of the world’s banks do. Read the rest of this entry »
Today’s Finextra has an interesting article – placed by RSA Security – on customers’ willingness to adopt improved security in place of the usual username / password combination. According to RSA (and, remember, their main products are security software and hardware) 91% of customers would be willing to use new authentication methods, including risk-based assessments. Personally, I find the idea that 9% would not be willing to use new methods odd.
I have recently changed my main banking relationship, partly on the basis of improved web security, but I am not aware of many people who even take this into consideration when deciding on which bank to use. To be honest, the 4 major Australian banks are fairly similar in their pricing of their main products, so differentiation now comes down to items like this and things like branch locations.
I would be interested in comments from people who are looking at changing their bank and what factors you would be looking at.
ASIC (the Australian companies regulator) is commencing a review of the EFT Code of Conduct – the code that governs the way banks and other deposit takers interact with their customers when they are using electronic means to communicate with their customers. This includes such areas as internet banking and the use of credit and debit cards – but only where they are being used by consumers, not businesses. Bank / business interactions are currently effectively unregulated, but, in practice, for small businesses the banks follow the Code for the most part.
The scope of the review is, from the media release:
- liability issues arising from the growth and growing sophistication of Internet fraud;
- regulation of alternative payment facilities;
- coverage issues, including whether the protections of the Code should extend to small business as well as consumer account holders;
- obligations around mistaken payments;
- administrative arrangements associated with the EFT Code, including compliance monitoring and ASIC’s role as Code administrator; and
- other more specific issues raised by stakeholders in preliminary consultations.
The big one here is obviously the first. The issue here is who pays when a fraudster manages to clean out your account? At present, it is the bank that pays – and then passes the costs on to its customers and shareholders. In practice, what this means is that those of us who do not fall victim to internet fraud pay for those who do. Is this right and fair? Read the rest of this entry »
The comment period on the last of the major Basel II implementation discussion papers has expired today. This means that the folk at APRA will now be busy on the last of the response papers and revisions to the draft prudential standards and draft prudential practice guides.
While not ideal, I think this process has gone reasonably smoothly. APRA have telegraphed their approach well ahead, consulted reasonably widely and made fairly sensible modifications to the Accord to suit Australian conditions. Although it has certainly had its moments, the banks and APRA have worked together as well as could reasonably be expected on this one. Read the rest of this entry »
Over the page is a little video from the 1940s. It gives a simplified view of most common banking processes. It is interesting how little changes in banking – the technology has improved (well – at least it has more flashing lights), but the processes remain. Read the rest of this entry »
An interesting speech released yesterday from the Deputy Governor of the Central Bank of Sri Lanka on the way that Basel II is being implemented in Sri Lanka makes a few interesting points – and allows some commentary on events a long way away from Sri Lanka.
- The release of Basel II seems to be having its desired effect on both regulators and regulated around the world. The risk management practices of the banks and the regulators are improving and the tiered approach (allowing three routes to compliance) is actually prompting some true thinking on what needs to be done;
- Banks the world over are making the mistake, however, of allowing the regulators to dictate risk management practices. Basel II is a great improvement on Basel I, but it is not best practice. Each bank should work out for itself what suits them best, which should be better than the methods the regulator uses for strict Basel II compliance. For example, the use of the regulatory caps and floors on the factors should not be encouraged for internal capital allocation; and
- This speech reinforces my point below – the US approach of simply ignoring the existence of the simpler approaches is just plain ludicrous. If all of the banks in Sri Lanka can comply with Basel II (no insult intended to Sri Lanka, but the US banks can generally be considered to have better information on their risks) then why can’t the US?
Ranee Jayamaha can be commended for understanding the Accord – my guess would be that this has been assisted by the Financial Stability Institute – if so, well done on their part. It is a great pity the same cannot be said of the US regulators.
Just a quick update on the happenings in the US on the Accord. I missed the update while on holiday (vacation for US readers). The NPRs (Notice of Proposed Rulemaking) were released on December 26 (was this straight after Christmas for a reason?) on the implementation / invention / re-implementation (respectively) of these sets of rules. At least the muddle seems to have stopped or at least been swept under the carpet. The deadline for comment on the Basel II NPR has been extended to March 26 to coincide with those for the Basel IA / I NPR.
The staggering thing, though, is the errors that are in the thought process behind the whole process the Basel IA / I NPR itself. Even on a chartiable view, the background statements justifying the differing rules in the US are somewhere on (if not over) the border between simply being wrong and outright lies. Read the rest of this entry »
A timely reminder, if one is needed, of the stupidity of introducing controls on financial market flows has been provided by Thailand recently. While this is an extreme example, with absurdly restrictive, indeed punitive, restrictions introduced in haste by a government that is inexperienced and, in financial terms, ignorant, it serves to show yet again that interrupting capital flows to try to manage the currency is just plain folly.
If your currency is changing in value more than you think is good, work out why it is happening. Then change that. You will normally find it is due to wrong policies in another area anyway.