EFSF metaphor of the day

It isn’t looking like we will get something that works.

Mark Roe’s example: how CCPs reallocate losses in bankruptcy

In a helpful post on project syndicate, Mark Roe gives an interesting example of the effect of central clearing in bankruptcy. I am going to tidy it up a little, to make it [I hope] particularly clear. Suppose we have three firms, BofA, AIG and Citi, with just the following assets and liabilities: BofA owes […]

Charting the crisis: Irish government bonds

I have commented before on a number of LCH Repoclear’s margin changes on Irish government bonds, but I hadn’t noticed quite how many there have been until I looked in detail. Here is [I think] the picture:

Tuckered again

From a recent speech by Paul Tucker: There is a big gap in the regimes for CCPs – what happens if they go bust? I can tell you the simple answer: mayhem. As bad as, conceivably worse than, the failure of large and complex banks. Errr, yes.

The capitalist network

Sorry, I am suffering from post backlog. Here’s something I have been meaning to get to for a little while. An analysis of the relationships between 43,000 transnational corporations has identified a relatively small group of companies, mainly banks, with disproportionate power over the global economy. Now I don’t entirely agree with the methodology but […]

Autumn colours

No, no sarcastic comment this time. Things in the Eurozone are too serious for that.

Who makes what

I have blogged quite a bit recently talking about the uncertainty in the value of banks, so much of Martin Sandhu’s recent column in the FT makes sense to me. He says: Can we ever meaningfully know how profitable a bank is? We can, of course, measure how much cash is taken out of it […]

How selfish should a central bank be?

I feel for Croatia. And Romania, Bulgaria and the rest. As FT alphaville shows, (using data from this FSB report), many smaller countries, especially emerging ones, have banking systems that are primarily overseas-owned. More than 90% of Croatia’s is, for instance. The primary culprits are the Spanish (BBVA and Santander are big in Latin America), […]

BofA’s derivatives move – facts and fallacies

Goodness me there are some fishy things being written about BofA moving their derivatives to the retail bank (which of course has FDIC insured deposits). Some of the things that are not true include ‘If a retail bank is a derivatives counterparty, then it doesn’t need to post nearly as much collateral’ and ‘The derivatives […]

The systematic risks of OTC derivatives clearing

An updated draft of my note can be found here. There are two health warnings: First, I had a hard 5,000 word limit, so it’s a little terse in places, especially if you aren’t sad enough to have spent time on OTC derivatives clearing in the past. And second, this is a draft, so I […]

An interesting demand

The forgive student debt movement seems to be gaining some traction. What I think is interesting about this – other than the fact that ex-students seem rather more deserving of forgiveness to me than sovereigns who have spent beyond their means – is the change in tone of the debate. Suddenly, partly thanks to the […]

Linkfest

The paper will be posted tomorrow. Meanwhile… Bloomberg reports ‘Interest-rate derivative users may have to set aside at least $1.4 trillion in margin payments under new rules mandated by the U.S. Dodd-Frank Act, according to research firm Tabb’. That is a lot of extra margin. Also from Bloomberg, unsurprisingly given the prior item: ‘Demand to […]

Gone for a little while

I am working on a longer paper on the systemic risks of OTC derivatives clearing and will be busy on that for a few days. I’ll post a draft once it is in reasonable shape.

How to recapitalize the banks

Timmy did it wrong. (That is hardly a surprise.) So European finance ministers, looking to recapitalize their banks, should not take his example. First the background from the FT: European Union finance ministers are examining ways of co-ordinating recapitalisations of financial institutions after they agreed that additional measures were urgently needed to shore up the […]

Another interpretation of 7% = safe

There is another way of understanding yesterday’s anomalous result that banks with a Basel III ratio greater than 7% did not fail, yet it seemed from some rather rough maths as though some of them should have done. It is simply that more capital protects a bank for longer, and thus you don’t need enough […]

Arguing against myself

Well, a little bit. Quite a few posts recently have argued against higher capital requirements. That doesn’t mean I don’t believe banks don’t need higher capital, just that it should not be a minimum requirement (because only capital above the minimum can be used to absorb losses). I do think, though, that those capital increases […]

Quote of the week

From a terse but excellent post by Jonathan Hopkin on what Ed Miliband, Labour party leader, should have said in his speech to conference: Ed could do with saying: “We used to think that you could cut your way out of a recession, and increase employ­ment by reducing Government spending. I tell you in all […]