The need to understand repo flows

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 […]

Talk postponed

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 […]

Creating a safe(r) custodian

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 […]

Another sunny picture on a dull day

This is still standing after seven hundred years; what of our constructions will be able to boast the same?

The symmetry of haircuts

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 […]

Neither a seller nor a lender be

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 […]

Upside procyclicality

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 […]

A difficult choice on 30th November POSTPONED

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 […]

The new nationalism in bank regulation

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 […]

Remember the summer?

It wasn’t so long ago, you know, that the global financial system was not plunging towards ruin…

Backtesting with BaFin

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 […]

On the honesty of Unicredit

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 […]

Basel news

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 […]

Bloomberg does Chicago

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 […]

Were the markets bamboozled by the Euro?

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 […]

Look to the arts

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.

Is Jens Weidmann the most dangerous man in the world?

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 […]

What is global liquidity?

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 […]

Volcker on regulatory reform

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 […]