Party mood?

Deus Ex will be back after the holidays. Best wishes and festive greetings to all my readers.

Floored (homophonically)

It’s an innocuous title, Risk-Based Capital Standards: Advanced Capital Adequacy Framework—Basel II; Establishment of a Risk-Based Capital Floor. You can read it two ways, though: a risk-based floor to capital requirements; or a floor to risk-based capital. It is the latter meaning that pertains here. As promised, let’s look at the document. To paraphrase a […]

Season’s gifts and other irritations

Goodness, what munificence. We have not one but five documents from Basel, plus notices of proposed rule making from the FED, OCC and FDIC on both market risk capital and the Collins Amendment. The Basel III material has received a lot of notice, so let me instead comment on a less well known Basel document, […]

Does your cabal look big in this?

The NYT has a histrionic article on clearing which both Craig Pirrong and John Carney do a good job of replying to. I particularly like the title of Carney’s piece: What if We Need a Secret Banking Elite to Rule Derivatives Trading? Here’s the issue. Central counterparties for OTC derivatives have to decide who they […]

Winter landscape

When does macropru trump micropru?

Let me explain. Macroprudential regulation is about the whole system, and ensuring its stability, while microprudential regulation is about protecting individual firms. As this note puts its Here is an example of macro-prudential concerns. Selling an asset when it appears to be risky may be considered a prudent response for an individual bank and is […]

Buck up Jonathan

Jonathan Hopkin is depressed about the state of the left. I’m not surprised: the results of the elections here and the US midterms were both hardly causes for celebration. The only real ray of light at the moment is that the Berlusconi era may be coming to an end. I’m more upbeat though. I hope […]

Anglo Irish

The auction results are out on the Anglo Irish credit event. Roughly: sub recovery 18%; senior 75%. The sub is clearly about right. The senior, though, is interesting. Would you rather have 75% for sure now or run the risk of getting 50% or less later in some Irish restructuring? On the other hand, if […]

A nice cup of CoCo

The idea of paying bankers’ bonuses in stock or stock options always struck me as odd. After all, equity is a call on the value of the firm after debt has been paid, and you maximise the value of the call by increasing volatility. Stockholders, then, naturally prefer risky high leverage structures – hardly the […]

Rockfall

BA not worst shock

It’s a travesty. The worst ten airlines in the world list is out and BA isn’t on it. OK, Iberia do make it in, but for shame BA, you tried so hard – it must be gutting not to have your contribution recognised.

Creditor? Motherfucker

Posted with admiration at the robustness with which the position is argued but otherwise without comment from interfluidity: Some people overconsumed relative to their income, and some people invested poorly. Those who overconsumed have mostly faced consequences for their misbehavior — they are either deeply in debt, or they have endured foreclosure or bankruptcy. But […]

Central clearing black ops?

Lest anyone think that the debate over central clearing and exchange trading of currently OTC products is one between the big banks (evil, natch) on one side and financial stability (the good guys, obviously) on the other, here is what the anti-OTC side has been getting up to. The story is interesting: Forged comment letters […]

Safety through accidents

The Psy-fi blog has a nice post on the desirability of having small errors in your risk systems to keep people alert (HT FT Alphaville). They begin by introducing the Titanic Effect: If you’re sailing icy seas you’d generally want to keep a watchful eye open for icebergs. Unless, of course, you’re in an allegedly […]