Forgive me, as this isn’t well thought out yet. Here are the pieces. First, from FT alphaville, an account of flattening and lowering of European sovereign repo curves caused by the demand for the bonds as eligible collateral at the ECB. In other words, central bank repo is so important a source of funds for [...]
Due to the planned strikes on the 30th November, my talk at LSE has been postponed. Up the workers! While the strike is about public sector pensions, it is perhaps worth examining while we are talking about political unrest the related topic of the Occupy London demands. It is striking how reasonable they are: We [...]
The problem with collateral is that it often creates exposure. Let me explain. Say you owe me $100 via some kind of contract, perhaps a derivative. You pledge $100 of cash against that exposure. We’re flat, right? Well yes, but if you gave me the money – collateral movement by title transfer – then I [...]
This is still standing after seven hundred years; what of our constructions will be able to boast the same?
FT alphaville recently talked to Richard Comotto, author of the International Capital Market Association’s repo survey. Comotto points out, quite properly: Investors are increasingly trying to protect themselves by demanding higher haircuts from counterparties, with the focus on the party receiving the collateral and offering the cash. This fails to account for the fact that [...]
When is a sale not a sale? When the purchase price is financed by the seller. Bloomberg has a gotcha story on European bank deleveraging: European banks, vowing to sell distressed assets as regulators tighten capital requirements, are lending money to buyers to get deals done. Royal Bank of Scotland Group Plc may provide as [...]
The usual (and so far as it goes correct) account of why procyclicality is bad goes like this: when times are bad, risk and capital requirements go up, causing banks to deleverage, and hence sell into falling markets exascerbating the falls. What this account fails to emphasise is why banks need to sell, i.e. why [...]
Dear Reader You have a hard decision to make regarding next Wednesday evening, the 30th November. You could go to a jovial gathering, perhaps one with free food and drink. You could return home to the bosom of your family. Or you could come and hear me talk about bank capital at the LSE. I [...]
An article on Bloomberg this morning is interesting more for the fact that it has been written – and that it appears on the Bloomberg front page – than for what it says. It is about Taunus, which is the holding company for Deutsche Bank’s US activities. Simon Johnson points out it’s the U.S.’s eighth-largest [...]
It wasn’t so long ago, you know, that the global financial system was not plunging towards ruin…
We all know that VAR performed terribly in the crisis, and as a result lost credibility as a risk measure. But how badly? BaFin’s annual report gives us a clue. It reports both the number of German banks with permission to use VAR models and the total number of backtest exceptions (see page 138). In [...]
Jonathan Weil has an excellent Bloomberg post on Unicredit’s $10B goodwill writedown and the light it shines on bank accounting. First Weil points out On average the shares of the 32 companies in the Euro Stoxx Banks Index trade for about 44 percent of book value Unicredit was worse than average, trading at 28% of [...]
The conceptual consultative paper on the fundamental review of the trading book has been delayed. It is now expected ‘after the TBG’s March 2012 meeting’.
I am out of town so this will be brief, but there are a lot of good things around today: Zoltan Pozsar has a nice paper on VoxEU, ‘Can shadow banking be addressed without the balance sheet of the sovereign?’. One of his main points, which we have made before, is that the demand for [...]
Two Bloomberg stories show how a CFTC rule change made it easier for MF Global to repo customer assets, and what it is doing about it. The history first, from William Cohan: Before 2000, the [CFTC] rule[s] permitted futures brokers to take money from their customers’ accounts and invest it in a number of approved [...]
This picture is from Pictet (via the ever helpful FT alphaville): Alphaville’s question is, given this, was Union sensible? I think it clearly was; on a weighted average spread basis, the EZ countries are still doing better than they were prior to the Euro, and even if they weren’t, those eight or nine years of [...]
The Tate yesterday said: Personally I think January 2012 is a little late for the ECB to be brought into the game, but Nicholas Serota moves in mysterious ways.
The president of the Bundesbank has ‘firmly rebuffed international demands for decisive intervention in the bond markets by the European Central Bank to combat the eurozone debt crisis, warning that such steps would add to instability by violating European law’. Jens Weidmann told the Financial Times that ‘only politicians could resolve the crisis, and he [...]
Mark Carney’s Drapers’ Hall speech has rightly been getting a lot of attention. It is about global liquidity. Carney starts with the context: global liquidity has swung wildly from the exuberant surge that fed a cavalier “search for yield” during the Great Moderation to the severe retreat that prompted the desperate “rush for shelter” in [...]
There is a long and interesting article by Paul Volcker in the current New York Review of Books on financial regulatory reform. Whatever you think of Volcker and his rule, he is smart and he has been thinking about these issues for a long time, so he is worth reading. For me, the final paragraph [...]
The Guardian says: Reports that Germany and France have begun talks to break up the eurozone amid fears that Italy will be too big to rescue If this happens, it will make the aftermath of Lehman look like a day in the park. An utterly preventable disaster is now looking entirely possible. Truly our leaders [...]
Aditya Chakrabortty tells a lovely story about how Antanas Mockus solved Bogota’s traffic problems: Put yourself in the position of one of Colombia’s would-be tough guys. Dawdling obediently at a red signal is hardly going to enhance your credibility, while traffic policemen are figures of authority whom it is your right, nay, duty to menace. [...]
I am puzzled. The WSJ has a useful, sortable list of earnings and employment percentages by undergraduate major based on 2010 US census data. Mostly, the data makes sense: reading science, engineering or a classic professional subject like medicine makes it less likely that you are unemployed and more likely to have a high salary. [...]
From the Daily Mash: G20 leaders revealed as covert anti-capitalism activists THE leaders of the G20 nations are undercover anarchists who have deliberately destroyed the West’s capitalist economy, it has emerged. Suspicions were aroused after key participants of last week’s acutely dysfunctional summit left with dejected facial expressions that looked suspiciously like ham acting. French [...]
One difficult criticism for those of us who believe that strong financial regulation is necessary – even if we don’t believe that the current structure is heading in the right direction – is that of rent seeking. The issue is that the stronger regulatory power is, the more it can be exploited. For me, the [...]
I am sure you could make a case for pronouncing that ‘fvail’… Dealbreaker points out a nice trick here. Note that: Basel III is demanding banks increase the amount of equity they have (as opposed to total capital); Some banks, like BofA, have seen large increases in their credit spread; If you buy back your [...]
It is really worth playing with the channel mixer menu in photoshop; you can sometimes find interesting black and white shots based on a colour picture if you play around a bit.
I am reluctant to use the phrase ‘What Went Down at MF Global‘ as I think events at the broker have a somewhat different tenor to a drug bust. Let’s ignore the title, then, and look at what Brad DeLong has written about the risk that brought MF Global down: In stage zero MF Global [...]
FT alphaville gets it: right now, CVA desks are driving something like a quarter of the demand for sovereign CDS. My guess is more like a third, but yeah, CVA desks are major players in the sovereign CDS market. Doing this is in part a regulatory arbitrage for them such that more hedging means a [...]
From the FT: CME Group, the biggest US futures exchange operator and key regulator of MF Global, the broker-dealer that filed for bankruptcy protection on Monday, said the company had failed to comply with rules on collateral in segregated customer accounts… A widespread concern among futures traders in Chicago is over how much of customers’ [...]