JPM’s surplus liquidity problem… May 19, 2012 at 8:11 pm

…was huge. Really huge. The FT reports that JPM’s CIO

has built up positions totalling more than $100bn in asset-backed securities and structured products – the complex, risky bonds at the centre of the financial crisis in 2008.

These holdings are in addition to those in credit derivatives which led to the losses and have mired the bank in regulatory investigations and criticism…

The unit made a deliberate move out of safer assets such as US Treasuries in 2009 in an effort to increase returns and diversify investments. The CIO’s “non-vanilla” portfolio is now over $150bn in size.

Just when you thought it couldn’t get any worse. They own

more than £13bn (or 45 per cent) of the total amount of UK RMBS that has been placed with investors since the market re-opened in October 2009,” the BBA said.

Systemic, moi?

3 Responses to “JPM’s surplus liquidity problem…”

  1. This made me think about wrong-way risk in liquid asset buffers. OK, JPM CIO moving out of USTs reduces a very remote wrong-way risk for that US bank. But what about European banks right now? They load up on their sovereign debt and they build wrong-way risk. Many will say this is just a function of the euro zone mess, which is true. But even if that mess had never arisen, the Basel Liquidity Coverage Ratio would have encouraged wrong-way risk to increase. That regulation would have been better-written if it limited holdings of own-sovereign paper, as well as limiting holdings of covered bonds etc.

  2. QM – absolutely agree. However there is no way that the European council (= a bunch of EZ govts) would agree to a regulation like that…

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