How much is too much?

Marco Onado at Vox EU makes a couple of good points: European Banks’ gross and net profitability are at a historical low level, so They have an incentive to remain on the present levels of leverage to obtain a ‘reasonable’ return on equity and the rate of increase of capital allowed by retained earnings is […]

At last a Republican policy I can get behind

Bloomberg tells us of a lovely policy idea that I really hope comes to pass: The biggest U.S. banks and insurance companies would have to pay a quarterly 3.5 basis-point tax on assets exceeding $500 billion under a plan to be unveiled this week by Congress’s top Republican tax writer. Done right (i.e. without a […]

The great London cronut crawl

Ever since the cronut was popularised by a Manhatten bakery, it was clear that London needed its own croissant-donut hybrid, and several bakeries stepped up to fill the breach. Which, though, is best? I have no idea, but it does occur to me that with contestants from Nunhead to Paddington and from the Northern borders […]


Do not charge your fellow man interest, whether on money or food or anything else that may earn interest. This passage, and its paraphrase in Hamlet, comes to mind reading Bloomberg’s account of the IMF’s new thinking on sovereign loans. Perhaps one way to interpret the ancient text is as pointing out that debt – […]

Collateral crises

From the abstract of Collateral Crises, by Gary Gorton and Guillermo Ordoñez: Short-term collateralized debt, private money, is efficient if agents are willing to lend without producing costly information about the collateral backing the debt. When the economy relies on such informationally insensitive debt, firms with low quality collateral can borrow, generating a credit boom […]

Eurovision and redenomination risk

Coming quickly behind the news that Scotland can’t have the pound, nor join the EU, should it pick independence, comes an even bigger worry for the Yes campaign: Scotland’s bid to join Eurovision would be opposed by countries where people can hear, it has been claimed. As so often, the Daily Mash is your source […]

A selective boost

I am all in favour of Keynesian stimulation when the economy is in the doldrums, but £28m for a public toilet is… perhaps inefficient? Still, as anyone caught short in many UK towns knows, we do need more public conveniences. At least this approach could provide a massive boost to would-be-edgy architects, plate glass manufacturers, […]

A trillion dollars less

From the New York FED’s latest Update on Tri-Party Repo Infrastructure Reform: [Due to reforms] the two clearing banks are providing over a trillion dollars less in intraday credit to market participants on a daily basis today than in February 2012. (Emphasis mine.)

The best of…

… #BundesbankValentines: zatapatique If we’d go again / All the way from the start / I would try to change / The things that killed our love. Also sprach Analyst I prefer our finances to be independent to prevent moral hazard Malcolm Crocker I love it when you address your structural deficits guan I will […]

Eating your own Coco

Dealbreaker catches a deeply amusing story from the WSJ: banks including the U.K.’s Barclays PLC, Germany’s Deutsche Bank AG and Switzerland’s UBS AG could shore up their U.S. subsidiaries… the U.S. units would issue to their parents a type of bond that converts into equity if the U.S. business’s capital falls below a certain level… […]

Tying Loan Rates to Borrowers’ CDS Spreads

João Santos blogs about an interesting paper on Liberty Street Economics. The development of the CDS market has provided banks both with a new way to manage their credit risk and with observable information on borrowers’ default risk. While banks do not seem to use the CDS market extensively to lay off credit risk, it […]

Nothing to see here, move right along

Dear me, can’t a billionaire write a bunch of long-dated exotic derivatives without those pesky kids sticking their noses in? Warren is getting a rough ride from Dan McCrum repeatedly, and today from Matt Levine, and he doesn’t quite deserve it. Here’s why. First, level three assets are not necessarily toxic. They can just be […]

Silver linings

I mean not just to clouds, but to Kit Kats too. In January the cocoa price went up precipitously, driven partly by increased demand from emerging markets, as the Nymex cocoa future price plot shows. This is profound implications for the cost of what’s inside those foil wrappers. A global emerging market crisis could of […]

What’s an “equity like” product in the credit market?

FT alphaville quote this chart from BAML in an article about (amongst other things) Cocos: It strikes me that leveraged loans are not much like Cocos. Think of it this way. Start with a senior bond from a good quality issuer. You can make this product more ‘equity like’ in a number of ways: Make […]