ROE, capital, and false conclusions

This post is an attempt to figure out what ROEs, returns on capital, and capital structure really tells us about the risk of banks. It is partly a response to Martin Wolf’s FT blog post What do the banks’ target returns on equity tell us? but also more generally a comment on the whole banks […]

Desperate times call for rational measures

Praise be. The EU has actually acquired some balls and is proposing a financial transaction tax. Yes, it will be widely evaded. Yes, it will make the EU less competitive. But the only way that these things get globally implemented is if someone tries it and it works well enough that the naysayers can be […]

Spam comment of the week

My spam blocker diligently stopped this: This website is certainly relatively useful considering that I’m with the minute making an online floral site… But deleting such charmingly random (if ungrammatical) spam is a little harsh. Clearly I should try to help.

Going backwards

Krugman says it so I don’t have to repeat myself: In 1971 it was clear that economists knew a lot that they hadn’t known in 1931. Is that clear when we compare 2011 with 1971? I think you can actually make the case that in important ways the profession knew more in 1971 than it […]

Unamerican and far beyond

This weekend’s Bloomberg view column seems to have generated some controversy. Let’s look at what the column says: The Basel III banking rules … require banks to finance their activities with more equity, or capital, as opposed to debt. The equity helps guarantee that the bank’s own shareholders will absorb any losses, instead of turning […]

The long view of gold

The Baseline Scenario (HT Naked Capitalism) has a lovely post on the long term gold price. It asks and answers the question: …the reason gold is so rare in the crust of the earth? Well, that’s because it’s relatively abundant in the earth’s core. When the earth was cooling, most iron-loving minerals sank toward a […]

Heaven is a place on earth

But not, presumably, one where you could get a market feed this week.

Strangely Legitimate: Susan on States and Stability

Thanks to a hint from Jonathan Hopkin, I have been reading Susan Strange. She was [thanks to dsquared for pointing out the tense: RIP Susan] one of the founding figures of international political economy (IPE), and coined the phrase ‘Casino Capitalism’*. One of Strange’s best known contributions is in the paper the Westfailure system. Here […]

Banking on the states

The Aleph Blog has an interesting if ultimately unworkable suggestion: Hand Banking Regulation Back to the States. First, to be charitable, why this could be a good idea: As the Aleph blog says, ‘It is a lot easier to beat one gorilla than 50 monkeys’. Certainly if there were 51 state banking commissioners, then some […]

Conflicts of interest in securitisations: the SEC starts to act

There is an encouraging new notice of proposed rule making from the SEC regarding conflicts of interest in securitisation. The proposed rule would prevent sponsors of such deals from betting against them. It would moreover prohibit them from structuring deals whose primary motivation was to allow others to go short. (See here for comment from […]

All too true

From that high quality news source, The Daily Mash, following on from the earlier police raid to free ‘slaves’ in Leighton Buzzard: As many as 60 million slaves could be living in Britain, it was claimed last night. Experts said the slaves were being forced to do horrible, demeaning jobs and live in disgusting conditions. […]

Happy end of summer

it really feels like autumn here now.

Hedging CVA with CDS

With a title like that, you know this is going to be technical. So I am going to assume you know what CVA is. The key point in hedging the credit spread sensitivity of the CVA is to note that you can calculate the sensitivity of the CVA to a small (1 basis point say) […]

Default big, default often

Mario Blejer, a former Bank of England adviser who took charge of Argentina’s central bank after the 2001 default, has been reported on Bloomberg: Greece should default, and default big,… Germany and France will have to bear the brunt of financing efforts to help Greece and other countries that default re-start their economies, he said. […]

Vickers outside the ring fence: part 3

So far we have seen that the Vickers Commission proposals are reasonably penal in terms of both the levels of capital they suggest for the largest UK banks and the concomitant leverage ratio. How much do these capital measures help? We can get some insight from Chapter 7 of the report. First some scene setting: […]

UK to sue ECB over clearing

From the FT: Britain is to sue the European Central Bank for setting rules that allegedly handicap the City of London and would force one of the world’s largest clearing houses to decamp operations to the euro area… An ECB policy paper, released in the summer, requires clearing houses to be based in the eurozone […]

Vickers outside the ring fence: part 2

After yesterday’s part 1, here is part 2 of my brief survey of the Vickers Commission report. As before, it concentrates on the proposals which are not related to ring fencing. First an encouraging section that shows that Vickers understands something of the role of capital: For banks’ CCBs [capital conservation buffers] to provide efective […]

Vickers outside the ring fence: part 1

For me, the interesting parts about the Vickers Commission report on the future of British banking are not the widely reported recommendations to ring fence retail from investment banking. Here are some quotes, lightly edited: First… if capital requirements could be increased across the board internationally, then the best way forward would be to have […]

Understanding the Euro with Charles

Goodness, I like Charles’ comment to my previous post more than the original. Let us indeed go with the Geuro (pronounced ‘gyro'; it has got all the meaty countries in it) consisting of Austria, Estonia, Finland, Germany, Luxembourg, the Netherlands, Slovakia and Slovenia; and the Feuro (pronounced ‘furo'; the countries in it are going to […]

Understanding the Euro with Buck’s Fizz

Making your mind up is difficult. Jonathan Hopkin gives us some help in a long and insightful post about the future of the Eurozone. He sees two possible outcomes: The first scenario is disintegration: the reversal of the process of ever greater European economic integration and cooperation. In this scenario neither core nor periphery member […]