After writing yesterday’s post on UBS, it occurred to me that microscopic capital requirements – which depend on the precise positions you have – are bad in at least three ways: They are really complicated, entrenching information asymmetry between the calculating bank and users of the information outside it; If they are uneven (which they [...]
The 14 big OTC dealers are becoming, well, at least 13 and likely 12. UBS is the certain loss, after its announcement of 10,000 job losses and a radical cut of its investment bank. In future UBS IB will focus on advisory, equities trading & FX. The upside, Citi research point out, is ‘potential c. [...]
The implementation date, as the Bond Vigilantes remind us, is 1st November, and boy is it having an impact on spreads:
Regular commenter Doug made a particularly insightful comment to my post last week about safe assets. His basic point is that Many people would be able to shift economic consumption across time and different states of the world. If I’m a pension fund I want to secure access to aggregated medical care for my pensioners [...]
Is there any such thing as a low risk asset? Here’s the context, from a report by Soc Gen on investment banks (HT FT Alphaville). This comes from the section on Credit Suisse: The key challenge remains their approach to leverage. The bank has not only levered up the IB during the financial crisis, but [...]
(Yep, a variation today.) How did an initial budget for the London Olympics of £3.6bn of which £1.1bn was meant to be public subsidy, turn into a cost to the taxpayer of £8.9bn yet people are still happy about it? Yes, it went well, but I would have thought that it was possible to spend [...]
(Yes, that is a theme for this week. I’ll get over it after that.) Can a Basel III liquiidity buffer every be used? The point is that banks have to have this buffer at all times, which means that they can never use it without triggering supervisory intervention. So do they in fact have more [...]
What do prefunded bank deposit guarantee schemes invest in? Why terrifying? Because the answer is sometimes they buy the bonds of, or make deposits at, banks they guarantee. In one case it is rumoured that a scheme was reluctant to take over a bank because their own assets were deposited at it and they did [...]
I’m late to this, and out of the office today, so let me leave you with Chrystia Freeland’s fascinating New York Times opinion piece from a week ago, The Self-Destruction of the 1 Percent. Happy creeping Serrata.
Star Wars Episode 3 is being repeated and, as usual, I have some sympathy with Vader the falling hero. As I hinted yesterday, I have rather less for Manmohan Singh’s recent article in the FT*. Singh is smart and he has produced some insightful work on OTC derivatives, but his most recent suggestion definitely comes [...]
I may, if I have strength, get to Botched Derivatives Risk Taming Regulations tomorrow, but frankly I’d rather sit in the sun and let mosquitoes the size of small birds nibble me right now — sadly that is not an option…
The SEC is proposing that the capital swaps dealers will require is set at 8 percent of the margin required for cleared and non-cleared security-based swaps. Gee, it’s a good thing they didn’t create a powerful incentive to drive margins down isn’t it?
Lord Turner thinks that, in retrospect, we should have injected more funds into UK banks during the crisis. The Guardian reports: “Looking back, and with the benefit of what we know now, I would have recommended UK banks have a higher level of capital and a boost to the counter-cyclical buffers they needed for the [...]
Steve Randy Waldman has an idea so politically impossible to implement that it is worth examining: We need a regime where banks of every stripe actually fail, even during periods when the economy is humming. If we want financial stability, we have to force frequent failures… A frequent-forced-failure regime would have to be relative, rule-based, [...]
The news that Lance Armstrong’s lawyer is calling for lie detector tests in his dispute with USADA makes me wonder if the Texan has found a new pill to beat the test. Or maybe has has just taken so much stuff that his perception of reality is permanently warped. As the Mash so perceptively observes [...]
We might have speeded up, but that worthy prize winner the EU is delaying. Twice. Bloomberg one: The head of the European Central Bank said that common banking supervision in the euro area may not become operational before 2014 even if legislation is in place at the beginning of next year. And two: The European [...]
I have been having some issues with my web server, for which I apologise. Pages have been slow to load and/or not loading at all. Today some maintenance was done which should speed things up, but the installation is still a little shaky so I would really appreciate reports of any performance issues. Either email [...]
The more I read of Matt Levine, the more I like the guy’s style. Here’s a summary of Jamie Dimon’s recent career Levine penned yesterday: Oversees huge opaque credit hedge position designed to optimize regulatory capital treatment. Tweaks VaR model for that position to be all wrong, understating risk and thus probably overstating capital ratios. [...]
Rhymes With Cars & Girls suggests the biggest free-lunch to be had in corporate America is to shutter all the “HR” departments and meanwhile cancel the contracts for the stupid keyword-matching resume-parsing software. Just let team leaders call up & hire directly all their friends and people they like – which is what ends up [...]
The Streetwise Professor doesn’t like Glass-Steagall (or Liikanen) style ring fencing: Insured deposits are a potential source of moral hazard, and there is a case to be made for limiting the risks that can be funded with insured deposits. But historically these activity limits have proved to be a very poor defense against risk taking. [...]
Yesterday I gave the broad outline of how to visualise cross holdings between CDOs of ABS: draw a graph whose nodes are CDOs and where there is an edge from A to B if A includes in its collateral pool a tranche of B. The strongly connected subgraphs of the total universe of CDOs – [...]
It is pretty much common knowledge now that as well as garden variety CDOs, there are CDO squareds – CDOs whose collateral includes tranches of other CDOs. What is a little less well known is that there are two kinds of CDO^2: Ones where all the collateral CDOs (i.e. the ones the CDO^2 owns tranches [...]
I’ve been writing a complicated piece of code over the weekend. It needs to read an excel spreadsheet, so I started in Visual Basic, a choice I am now regretting. The problem isn’t easy, there’s quite a bit of data, and the algorithm is naturally expressed in a way that’s quite inefficient to implement without [...]
I do like a nice dead tree.
From a Citi research note ‘UK Banks and the Quantum of Capital’: The FPC’s last meeting recognised that “some actions which boosted the resilience of individual banks could adversely affect near-term credit availability, for instance if requirements to increase capital ratios provoked deleveraging focused on UK lending”. To mitigate this risk, the FPC recommends banks [...]
MS CEO James Gorman said in an interview with the FT: “There’s way too much capacity and compensation is way too high”… “As a shareholder I’m sort of sympathetic to the shareholder view that the industry is still overpaid.” Bloomberg describes the problem nicely in an article entitled No Joy on Wall Street as Biggest [...]
Erkki Liikanen and his group have left Michel Barnier with a problem. By coming up with proposals (albeit non-binding ones) which are fairly radical, Erkki has dared Michel to implement them. Like the seasoned politician he is, Michel quickly bought himself some breathing space by opening a public consultation for the next six weeks, saying [...]
From the unexpectedly radical Liikanen report: The [Liikanen] Group welcomes this [the fundamental review of the trading book] review. In its work, the Group has identified two approaches to improve the robustness of the trading book capital requirements: setting an extra, non-risk based capital buffer requirement for all trading-book assets; and/or introducing a robust floor [...]
Anyone who has flown AA in the last year or so will probably have an inkling that they are not having the best of times. Gary Shteyngart in the New York Times is a little more assertive in describing their malaise: You, American Airlines, should no longer be flying across the Atlantic. You do not [...]
The EU is understandably irritated by the new Basel report on the state of their Basel 3 implementation. (HT FT Alphaville.) There are three reports, on the EU, US and Japan, but the EU one contains the most criticism. This is peeving M. Barnier and his colleagues in the Commission who opine: Notably, when comparing [...]
