Brown Vitter section-by-section guidance…

…can be found here. You might think that B-V is impossibly strict and hence impossible to pass, but there is the core of a good idea in this bill, and it would be dangerous to dismiss it entirely. A slightly gentler B-V with phased implementation (say, a simple leverage ratio rising from 3% to 12% […]

Equity, debt, freezers and TVs

My freezer is like equity, my TV is like debt. Let me explain. There is a push from electricity suppliers to distinguish appliances that need their power now – like TVs – from those that can wait a few minutes – like freezers. We might even imagine a situation where there are two types of […]

The curious case of the risk floor

Karl Smith has a theory: … lets imagine a simple model where we have two sources of risk. There is background you cannot avoid. And, there is personal risk that you create by through your own choices. Policy makers have since Thomas Hobbes been attempting to drive down background risk. They have larger been successful. […]

Simon Johnson and John Parsons chide Mary Miller

In a speech on last week Mary Miller, Treasury under secretary for domestic finance, made the case that the Dodd-Frank reform legislation has substantially ended the problem of too-big-to-fail financial institutions. Johnson and Parsons don’t agree, writing in the NYT: Ms. Miller’s speech is completely unconvincing on the substance of the points that she is […]

Victims in Vegas

From Bloomberg: As Ed Provost took the stage at the Green Valley Ranch Resort & Spa in Las Vegas to explain how a software malfunction had shut the Chicago Board Options Exchange for three-and-a-half hours, he was surrounded by people who were victims of similar disruptions. On the panel with him were Jeromee Johnson from […]

My ipad, and your derivatives

Those of you with multiple devices – and most of us these days have at least two out of a phone, a tablet, a laptop, a desktop and an ipod-like thing – will be familiar with the nightmare of sync. This is particularly painful with music: you have it nicely set up in one place, […]

The naked CDS ban 6 months on

The FT has a timely article on the consequences of the EU’s ban on naked CDS: Investors are buying protection on European banks on the basis that banks and sovereigns are so intimately linked that any increased risk of a sovereign default will increase the value of a bank CDS in a similar way to […]

How not to win the Deutsche Börse Photography Prize

Wandering around the exhibition ahead of this year’s Deutsche Börse Photography Prize, it seemed to me that there’s a recipe for how some photo prizes work. It might go something like this: Select 0, 1 or (exceptionally) 2 artists with some insight for photography, sensitivity to the medium, and technical skill. Select 2-4 artists who […]

The missing futures data repository

While we can clearly agree that Bloomberg has a dog in the futures vs. swaps fight, that does not necessarily mean that all of their comments are wrong. Here for instance is an interesting observation by Bloomberg CEO Daniel Doctoroff in the Huffington Post: Congress mandated that swap transactions be reported to a “Swap Data […]

Thank you Bloomberg

In a move that will at very least make life more interesting, Bloomberg has done as it threatened and sued the CFTC. Their bone of contention is the so-called margin period of risk on OTC derivatives vs. futures. As the FT reports: Bloomberg objects to how the CFTC has set different margin rules, that favour […]

Delaware and the sham of shareholder ownership

Yes, I know it’s a strident title. Bear with me, because I want to share some of James Stewart’s bile with you. Unlike the guy from It’s a Wonderful Life, this James Stewart has a nice line in barbs: …an electoral system unworthy of Soviet-era sham democracies is flourishing today in corporate America is largely […]

I’ll take a 1 please, Bob

JP’s recent research report into investment banking has generated a lot of comment (see for instance here for a nice piece from Matt Levine); Citi came out with their version the day before. Let’s take (some of) JP’s handy cut-out-and-keep classification, add them into the mix (as they don’t appear on their own chart), and […]

The curious case of the 2s of 2023

The overnight repo rate on the 2% T bond of February 2023 bond did some odd things in March, as Real Clear Markets reports: [The repo rate] had been about 20 basis points in the week prior, but fell negative on Monday, March 11. By the close on Wednesday, March 13, the overnight repo rate […]

Hoenig hits out

This man really knows how to make a speech. The following is from one he gave in Basel (!): An inherent problem with a risk-weighted capital standard is that the weights reflect past events, are static, and mostly ignore the market’s collective daily judgment about the relative risk of assets. It also introduces the element […]

Today’s detention

Go and read Lisa’s excellent post on Pat Hagan’s skills in titling emails and optimising capital.

Downing Drysdale

Scott Skyrm helpfully reminds us of an historic failure, that of Drysdale. The origin of the failure was a glaring arbitrage between the US repo market in the 80s and the treasury market. The former did not account for accured interest on repo’d t-bills, while the latter did. Drysdale’s head trader started short-selling U.S. Treasurys […]

On no longer washing

The stock loan business is, paradoxically getting less dirty because it is no longer washing. No longer washing dividends, that is, in tax arb trades. That is because ESMA has acted. The FT reports: The profitability of lending programmes has been eroded by new guidelines from the European Securities and Markets Authority, which came into […]

Go Brown-Vitter!

From Bloomberg: The largest U.S. banks… would have to hold capital in excess of Basel III standards under a proposal being drafted by Senate Democrats and Republicans to curb the size of too-big-to-fail banks. The current draft of the legislation would require U.S. regulators to replace Basel III requirements with a higher capital standard: 10 […]

Unfair but funny

That most authoritative of news sources, the Daily Mash, has drawn their own conclusions from the HBOS report: A DAMNING report into former bank bosses has raised the question of whether anyone should be allowed to work in finance. As the banking standards commission suggested three former HBOS directors should be banned from the industry, […]

The distraction of Basel II

From the Parliamentary Commission on Banking Standards report into the collapse of HBOS: A huge amount of regulatory time and attention, in relation to HBOS as with other banks, was devoted to the Basel II model approval process… HBOS attached importance to obtaining the so-called ‘advanced status’, because it would potentially enable them to hold […]