Inspired by Jonathan Weil on the breakup (or not) of Bank of America, and with apologies to Ronnie Wood: In the morning Don’t say you sex me up Cause I’ll only kick you out of the door I know your name is Tom Cause your losses smelling sweeter Since when I saw you down on [...]
Given the current insanity, DEM is escaping to the countryside. Best wishes for a good weekend to one and all; posting will resume at some point next week.
Mario Draghi said: The interbank market is not functioning, because for any bank in the world the current liquidity regulations make – to lend to other banks or borrow from other banks – a money losing proposition. So … regulation has to be recalibrated completely.
Yesterday we gave the simple example of how to optimize the haircuts in a standard rules capital framework to produce the best result for some sample portfolios relative to a target risk measure. The issue of how to deal with risk factors which somewhat diversify each other was sidestepped by assuming that the total capital [...]
Yesterday, we saw that we can measure how wrong a capital framework is by looking at the difference between the capital it produces and some target amount for a range of calibration portfolios. We defined a notion of the error of a capital framework. The problem of calibrating a capital framework is that of determining [...]
This is the first of a series of posts on ‘standard rules’ regulatory capital frameworks. The common feature of such frameworks is that capital is defined as some percentage (‘the haircut’) of notional, or of the net position in a risk factor. We will try to say something about how to determine those percentages and [...]
Bloomberg draws some lessons from the report on the crash of Air France 447 for US pilot training. 447 failed due to a high altitude stall. Pilots of small planes practice diagnosing and recovering from stalls using actual aircraft, but it’s too risky and expensive for the major airlines to do this in their planes, [...]
Whatever happens in the Olympics, the most impressive British sporting triumph of the summer has already happened
Well done Bradley: leading Mark Cavendish out for the stage win in Paris emphasized what a great champion you really are.
From the FSOC annual report: Currently, triparty repo trades unwind every day, meaning that the clearing bank returns cash to the lender’s account and returns collateral to the borrower’s account. Trades are not settled until several hours later. For several hours each afternoon, dealers require funding of their entire triparty repo book that lenders do [...]
A friend of mine has just pointed out that for a social worker to renew their license in the US, they have to have had at least 4 hours of ethics training in the past two years. Perhaps given recent Abacus/Libor/muni swaps/corporate swaps/… it should be a criteria for renewing your series 7 or FSA [...]
In the aftermath of the G4S humiliating shambles, this question needs to be asked. It seems to me that there are at least three preconditions that have to be met before it makes sense for the government to pay a private company for a public service: They can say what they want. That is, it [...]
I have long argued that there are (at least) two things missing from the traditional account of bank credit creation: Capital, because you can’t make a loan without having capital to support it; and Carry, because the real asset/liability mismatch is that in making a loan you expect its cost of funding to be less [...]
From BCBS 226, the new (-ish) Basel consultative document on margin requirements for non-centrally-cleared derivatives: Under current market practices, the exchange of two-way initial margin in bilateral trades is not universal. Accordingly, requiring the segregation or other protection of initial margin collateral may create material incremental liquidity demands and trading costs relative to current practices, [...]
Two of the more interesting documents to come out of the Libor debacle have been the letter from Adair Turner to Marcus Agius on the tone of Barclay’s interactions with SFA, and Aguis’ reply. They can be found here and here. Now, tone is a personal thing: one person’s brash is another’s business-like. So you [...]
There is still some peace to be found in East London though – just stay away from that hideous event. Update. While we are talking about that hideous event, check out these hilarious reviews of the olympic mascots (via Charlie Stross).
First, the CFTC swap clearing exemptions (which I listed yesterday in an earlier version of this post). As expected, two are proposed: swap used ‘to hedge or mitigate commercial risk’; and sswaps conducted by a ‘small financial institution’ ($10B or less in assets) See here for the CFTC proposal summary. This is broadly similar with [...]
A recent Bloomberg story about VAR model changes points out Wall Street firms routinely give only broad outlines of how their mathematicians calculate VaR, according to data compiled by Bloomberg, and almost nothing about changes in statistical assumptions or the prices they choose to feed into their models… The skewed comparisons can leave investors guessing [...]
Is it just me, or does the shard remind you of old master pictures of the Tower of Babel too? I’m not so much thinking of the famous Breugel, more Doré or that odd one in the Kur- pfälzisches Mueseum. If I were the CEO of any financial institution looking for a new home right [...]
Ed has a good idea. The Guardian reports: Ed Miliband is to call for a “root and branch” reform of the banking industry, including forcing the “big five” banks to sell up to 1,000 more branches to increase competition. I’m not sure I like compulsion, as it puts the responsibility for how many branches the [...]
From John Hempton: There is no reason at all to think the market clearing real interest rate has to be positive – indeed given the nature of the incremental savings pool in the world there is a reason to think the reverse. Very true. Update. As if on cue, FT alphaville reports After the ECB [...]
The Guardian has a fascinating if depressing exclusive on a new report from Democratic Audit. It notes that while there have been some positive trends – including stronger select committees; devolution; and enhanced disclosure of expenses and party donors – the overall trend is down. Britain’s constitutional arrangements are “increasingly unstable” owing to changes such [...]
There’s a problem in corporate swaps. It’s this. Basel 3 has a capital charge for CVA risk. This charge increases the price that some corporates will have to pay for their swaps, given their current credit support arrangement. The EU may or may not grant an exemption from this charge for many corporates. It’s a [...]
It is relatively simple to see the liquidity of a bond. You see how many times a day (or week, or year) it trades. A commenter on a prior post suggested that the number and spread of these quotes is also a useful indicator of liquidity. I’d agree, with the caveat that a quote is [...]
The title says it all, really, and Manmohan Singh – in a truly excellent post on VoxEU – goes through the details. re-use of pledged collateral creates credit in a way that is analogous to the traditional money-creation process, i.e. the lending-deposit-relending process based on central bank reserves. Specifically in this analogy, the bonds [pledged] [...]
From a clever chap I had lunch with last week, apropos JPMorgan: The market punishes the successful by giving them too many opportunies. His point was that of the three big universal banks that came out of the crisis well – JPMorgan, Barclays and Deutsche – two of them have now blown up. So, Anshu, [...]
Via Alea, I found an interesting article in Euromoney about a presentation by JPMorgan’s Michael Ridley. He was discussing the parlous state of secondary bond market liquidity in Europe is one of the most worrying by-products of the region’s bank-funding crisis. Primary volumes in the first quarter were excellent, but secondary volumes remain low. Apparently [...]