European bankers found a way to decrease the amount of obligatory reserves needed to cover risks as it is provided by the new rules of Basel III. Financial experts advise to withdraw most risky assets to special investment funds for exactly this case.
Swiss bank Credit Suisse is attracting 800 million dollars to the investment fund Christofferson Robb & Company (CRC) which will allow European banks to decrease the amount of reserve capital and still meet the Basel III requirements. According to Financial Times, CRC is ready to take on itself most risky assets, signing agreements on “two-sided synthetic securitization” with those credit institutions. Upon withdrawal of assets risks of banks will be decreased, which means they will need smaller capital reserves to cover them. This business is potentially very promising because with those deals banks will able to count on large economies of scale.
For instance, the amount of reserves to cover the credit portfolioof 3 billion euro may be decreased by 85%. The main problem here is the fund’s potential: it is able to satisfy only 1% of potential demand for this kind of services. CRC counts on 7-15 of such transactions with 4-6 European banks. Christofferson Robb & Company isn’t new in the business: it has provided its services of risky assets management since 2002. The organization’s branches are in New-York and London. Total assets in management of the organization are estimated at 1.3 billion dollars. Experts foresee more funds like that to enter the market soon. This type of transactions isn’t illegal, thinks the economist of UniCredit Alexander Plenk. “The point here is not in escaping Basel III requirements”, - he said, - “But schemes like that will allow banks to adapt to the new requirements more easily”. He sees two major ways for banks to follow Basel III: either to increase capital, or to find a way to get rid of risky assets.