Stay with me

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 […]

Escaping the VIPs

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.

Regulatory change – news from the department of big hints

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.

Designing standard regulatory capital frameworks 3: dealing with association

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 […]

Designing standard regulatory capital frameworks 2: some choices

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 […]

Designing standard regulatory capital frameworks 1: quantifying error

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 […]

Training with stress

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.

Understatement of the week award

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 […]

Compulsory ethics training for bankers

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 […]

When can private delivery of public services work?

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 […]

It’s all about the carry

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 […]

A segregation puzzle

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, […]

Culture and supervision

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 […]

Armed troops on the streets, an aircraft carrier on the Thames, and missiles on our roofs

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).

Two clearing regulations

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 […]

Changing my model

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 […]

Does my corporation look fat in this?

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 […]

Let many banks bloom

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 […]

Quote of the day

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 […]