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There is much talk and to do about Basel III and capital ratios of banks. Is 7% or 9% the right number, or should it be even higher. The reality is the ratio is really not the issue. It is the definition of what is accepted as capital and to what haircut for Tier I capital. The ratio could be 5% if the definitions were strict or 15% if they are weak. Here is an example. CMBS bonds can be counted if they are ranked AAA, even though we all know that CMBS AAA is not really AAA in the strict sense. We all saw what happened to the bond prices in 2009. We saw downgrades. We see Greek sovereign debt really being in default even though the EU is going to craft a make believe refinancing that will let everyone claim there has not been a default. You get the idea. So clearly cash deposits are real, where the definition of risk adjustment on any given security is a political one being made to assure that the truth about many European banks is once again hidden and the can is kicked further down the road of hope for better times.

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