The Basel Committee on Banking Supervision housed at the Bank...

The Basel Committee on Banking Supervision housed at the Bank for International Settlements gives guidelines to national banking regulators for capital adequacy of banking institutions.

Common ratios are guidelines are:

* Tier 1 capital ratio = Tier 1 capital / Risk-adjusted assets >=6%
* Total capital (Tier 1 and Tier 2) ratio = Total capital (Tier 1 and Tier 2) / Risk-adjusted assets >=10%
* Leverage ratio = Tier 1 capital / Average total consolidated assets >=5%
* Common stockholders’ equity ratio = Common stockholders’ equity / Balance sheet assets

How does BNB stack up as a bank?

Tier 1 capital
Add:
i) Common stockholders’ equity $2,06B
ii) Qualifying perpetual preferred stock $1.6B
iii) Qualifying mandatorily redeemable securities of subsidiary trusts
iv) Minority interest $0.57B
Less:
i) Net unrealized gains on securities available-for-sale
Accumulated net gains on cash flow hedges, net of tax $0.4B
ii) Intangible assets:
- Goodwill $0.34B
- Other disallowed intangible assets
Deivatives $0.07
- 50% investment in certain subsidiaries - BBP??

TIER 1 capital ~ $4B

Tier 2 capital
Add:
i) Allowance for credit losses
ii) Qualifying debt
iii) Unrealized marketable equity securities gains
Less:
i) 50% investment in certain subsidiaries

TIER 2 capital ~ $0, say

If BNB were a bank:

- It could support risk adjusted assets of $66B by the Tier 1 ratio

- It could support risk adjusted assets of $40B by the Total capital ratio

- Total consolidated assets would need to be less than $80B to meet the leverage ratio

- Common equity ratio is $2.6B/$14.2 = 18% (Citigroup in 2003 - 7%)

The surprising conclusion is that BNB is probably in better shape than its counter party banks to service the debts it has accumulated on high quality assets!!

I cannot see that it is in anyones interest to tip this functioning entity over the edge. There would be more material harm to the banks, in this action, than is warranted by the risk that the debts current pose.