http://www.ft.com/cms/s/0/8fd4eeec-45cb-11df-9e46-00144feab49a.html
April 12 2010 Financial Times
Banks seek to exploit new rules By Patrick Jenkins, Banking Editor
Investment bankers have begun to develop ways in which banks might be able to circumvent the most punitive of the new capital rules being drawn up by international regulators.
According to investment bankers and senior bank executives, new products are being developed that would allow banks to mitigate the shrinking of their capital bases under the new rules by using a new generation of financing structures.
The more entrepreneurial investment banks - traditionally the likes of Goldman Sachs, JPMorgan and Deutsche Bank in this kind of area - have spent recent weeks touting new product ideas to banks that will be hit by the new rules.
The initiatives are focused in particular on ways in which deferred tax assets - to be outlawed as capital under current Basel thinking - can be turned into cash or an equivalent that would be valid for capital purposes.
Bankers say the assets could be sold at a discount of 20-30 per cent, either via actual sales or using derivative instruments, to non-bank buyers.
Pension liabilities could be re-engineered in similar ways.
Many bankers will support the initiatives as good creative thinking. But critics will see them as the latest evidence that banks have not learned their lesson from the crisis and will always focus on arbitraging the system for a profit, however tough the rules.
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Michael