The ouroboros, an ancient symbol of a serpent eating its own tail, has been used throughout history to represent the cyclical nature of time and existence. From the tomb of Pharaoh Tutankhamun in Ancient Egypt to Norse mythology, the ouroboros has been a powerful symbol of infinity and renewal. In more recent times, the ouroboros has been used to describe the modern financial system, specifically the concept of credit risk being continually cycled out of banks only to return once more.
Following the global financial crisis of 2007-09, lawmakers in America and Europe enacted new regulations aimed at reforming the financial industry. These regulations sought to increase the amount of capital banks were required to hold against their assets in order to protect against potential losses. Additionally, the regulations aimed to limit the risky behaviors that had led to the crisis, such as proprietary trading. To measure compliance with these regulations, banks are evaluated based on their common equity tier 1 capital, or cet1, which compares a bank’s equity to its assets adjusted for risk weights.
The ouroboros analogy is particularly fitting when applied to the financial industry, as the cycle of credit risk being taken on, cycled out, and then returned to banks is a fundamental aspect of the system. By increasing capital requirements and implementing stricter regulations, lawmakers hope to break this cycle and create a more stable and secure financial system.
In conclusion, the ouroboros serves as a powerful symbol for the cyclical nature of the financial industry, particularly in relation to credit risk management. Through increased capital requirements and regulations, lawmakers aim to break the cycle of risk being passed around and ultimately returned to banks. By understanding this cycle and implementing necessary changes, the financial industry can work towards a more stable and secure future.
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