BIS central bankers’ speeches  23  Table 1: Approximate number of estimated parameters for a typical large international bank(a)(b) Probability of default  Loss given default  Number of models  Range of parameters  Retail mortgages  10–15  10–15  40  400–600  Credit cards  10–15  3  15  100–140  SME retail  10–15  3  6  40–50  Wholesale  5–15  5–15  100  500–1500  SME corporate  5–15  5–15  2  10–30  (a) Number of parameters required to determine credit risk capital charges under the internal ratings-based approach. (b) The number of parameters used to estimate PD and LGD, as well as the number of models used for each portfolio, have been estimated based on a large representative UK bank, so they are a broad approximation only. To calculate the range of total parameters we have assumed that half the models are used to estimate PD and the other half are used to estimate LGD. Table 2: Risk-based capital versus leverage for major global banks Variable  Model 1  Leverage ratio  –0.37 *** (0.13)  Risk-based capital ratio  Model 2  Model 3  –0.16 (0.11)  –0.35*** (0.13) –0.07 (0.11)  Notes: For all models, the dependent variable is “failure”. Standard errors are shown in brackets.
Were these proposals to become mired in detail, they risk sinking, like the Tower of Basel, into the swamp. This is not because these proposals go too far but because they may not go far enough. These reform efforts have too many commas, semi-colons and sub-clauses. They would benefit from a few more full stops. That logic suggests cleaner solutions than are currently being implemented, if not than are currently being contemplated. Strict size limits and forced separation of commercial and investment banking are two frequently cited such radical options (Haldane (2010), Fisher (2011), Johnson and Kwak (2010)). The debate on them has waxed and waned on both sides of the Atlantic. A stalemate has been reached. Having risen to a peak of almost three in 1928, the largest US banks’ price-to-book ratios had by 1931 plummeted to below one. They remained close to these levels for several years afterwards (Chart 20). This discount implied that investors in the bank could improve their wealth by selling-off the banks’ assets separately. Investor pressures to separate began to mount. In response, a number of banks began selling off their equity brokerage affiliates, including the two largest banks, Chase National Bank and National City Bank in 1933. A number of banks delisted their shares. This response, led by the market, paved the way for the passage of Glass-Steagall in 1933. As Fuller (2009) puts it: “Divorce made a virtue of necessity and cursed and condemned bankers jumped at the opportunity to demonstrate their virtue”.