Light posting – and a quiz to keep you (somewhat) amused December 6, 2012 at 6:16 am

I am trying to finish something, so things will be a little quiet here for a while. I’ll also be travelling, too, so let me leave you with sunrise over the Eastern seaboard* and a few other things besides. The DEM seasonal quiz consists of three rounds.

Picture round.

1. Which airport is this?

The sun rises in the East

(Hint: 071-00-23)

2. Name the banks**.

Banks

For extra credit, why is the price/book ratio of the middle one unusual, and what was the controversy concerning the scene depicted in the last picture?

3. Where is this?

Protect

For extra credit, what’s the connection with the recent conversion of Sandy Weill?

Quotation round. Identify the sources of the following quotes:

  1. “While there was broad consensus that re-hypothecation or re-use of initial margin should be
    prohibited in order to ensure that property would be readily available to derivative counterparties if the receiving firm failed, the US SEC has raised a question as to whether re-hypothecation or re-use of initial margin should be permissible”
  2. “History has shown that many systemic banking crises resulting in large commitments of public support have originated from excessive lending in real estate markets. This has often been coupled with funding mismatches and over-reliance on wholesale funding. The current levels of RWAs based on banks’ internal models and historical loss data tend to be quite low compared to the losses incurred in past real estate-driven crises. The EBA and the new single euro area supervisory authority should make sure that capital adequacy framework includes sufficient safeguards against substantial property market stress (e.g. via robust floors on the RWAs calculated by internal models).”
  3. “VaR models change almost every time we talk”
  4. “The loss of counterparties and increased haircut demands further exacerbated liquidity strains. In addition, throughout the week, securities that could no longer be funded through third-party repos market were left “in the box” at DTCC, BNYM and JPMC. The excess box collateral, as depicted on the Liquidity Dashboards, increased from $119 million on October 21 to $606 million on October 26. No funding in the market via repos or stock loans (as normally done) was available for these assets… At the same time, during the last weeks of October, the cash created within the repo matched book began to decline because counterparties demanded greater haircuts”
  5. “A ‘hedge’ is not a self-evident feature of the world, but a contestable cultural category.”
  6. “We affirm that it is imperative to break the vicious circle between banks and sovereigns.”
  7. “In particular, we must address, once and for all, the unfairness of a system that privatises gains and socialises losses. By restoring capitalism to the capitalists, discipline in the system will increase and, with time, systemic risks will be reduced. In addition, the knowledge that major firms in markets far away can fail, without meaningful consequences at home, will restore confidence in an open global system.”
  8. “We had some discussion about this issue, but there was no-one able to explain to me why there should be a totally different approach for FX markets in comparison to other markets. Of course I’ve learnt what the US did during the weekend – they will not include FX swaps in the Dodd-Frank regime. But that is the US approach. For the moment I don’t see any need to have another approach for FX at the European level.”
  9. “The Federal Reserve should be abolished because it is immoral, unconstitutional, impractical, promotes bad economics, and undermines liberty.”
  10. “Credit rating agency Standard & Poor’s has upgraded itself to Triple-A Plus Super Fantastic”

Regulation round.

  1. Under the Basel III capital rules, if I buy CDS to hedge my CVA from a counterparty with whom I have no collateral agreement, does the hedge attract CVA capital?
  2. Under the Basel III liquidity rules, what is the RSF for derivatives assets in the NSFR?
  3. Which asset class showed the largest reduction in capital requirements in the move from Basel I to Basel II?
  4. What is the margin period of risk for futures in the US? For swaps? Given this difference, what could possibly go wrong?
  5. What is the capital charge for AAA-rated non-granular senior ABS under Basel 2.5, assuming that the security is not a re-securitisation? Given that assets like that caused the biggest financial crisis in two generations, how do you feel about that?

Answers in the comments please. There may be a prize if (a) I can think of something suitable; and (b) the replies are impressive or amusing enough. Google if you want to, but it’s probably more fun to try guessing first.

* You are right, I didn’t say which country this airport is on the Eastern seaboard of. And was the American plane included to further confuse?

**Picture credit for the one on the right, Julia C Reinhart.

11 Responses to “Light posting – and a quiz to keep you (somewhat) amused”

  1. [...] Deus Ex Macchiato » Light posting – and a quiz to keep you (somewhat) amused. Share this:EmailPrintTwitterLinkedInMoreGoogle +1FacebookDiggLike this:LikeBe the first to like this. [...]

  2. Regulation Q4: 1 day, 5 day, close out will be interesting.
    The airport photo was taken with a Canon S90, but I have no clue where.
    The quotations ought to all be Gary Gensler but probably aren’t.

    The rest is way too hard.

  3. These are truly difficult.
    Picture round: 1. Boston Logan; 3. FDR Memorial
    Quote round: 1. Mary Shapiro? 3. Jamie Dimon? 5. Bart Chilton? 8. David Wright?
    Reg Round: 1. Yes 4. 2 days and 5 days. 3 day clean exposure between two offsetting trades.

    Don’t know any of the others. Great questions.

  4. Reg Q2: Is the RSF 0% if the asset has an outstanding maturity of less than a year?

  5. 1. No idea.
    2. BIS aka tower of basel; no idea; GS in New York during Sandy.
    Quotation round:
    1. bcbs_226
    2. Liikanen report
    3. Jamie Dimon
    4. don’t know
    5. Douglas Mackenzie
    6. Eurozone heads of state
    7. Mitt Romney, not
    8. don’t know
    9. Ron Paul
    10. some S&P executive

    Regulation round:

    1. Yes.
    2. Fair Value if on balance sheet? None, if not?
    3. AAA corporates under IRBA but debatable
    4. No idea?
    5. 20 if under RBA. who knows, if in IRBA. If you have it in the correlation trading book, who knows.

  6. Some really good answers so far, thank you. I will leave this open for quite a while longer before I post answers. Quote 7 is one of the more interesting ones, given the speaker’s new role…

  7. 1. Boston Logan
    2. a) BIS, b) Dexia, b) Goldman, NYC
    3. FDR Memorial, Washington, DC (don’t know about Sandy W)

    1. Basel Committee on Banking Supervision
    2. Liikanen
    3. Dimon
    4. Tucker, BoE
    5. MacKenzie and Spears on Copula (read on AV and here)
    6. One of the many Euro Group summit statements
    7. Mark Carney
    8. Olli Rehn
    9. Ron Paul (alternative answer: Zero Hedge)
    10. The Onion

    1. Yes
    2. Don’t know
    3. AAA rated assets
    4. a) Daily, b) 10 days. b) Should be interesting when netting, hedging, etc. especially in high volatility periods.
    5. Don’t know, but I guess too little, which kinda makes me think we have learnt absolutely nothing…

  8. Oh, and the GS picture is during Sandy where they were the only ones with power, I believe.

  9. Wow, great answers from Simon H there. The middle picture is still hard for people, which doesn’t surprise me as it isn’t from a typical bankers town – but Simon, while wrong about Dexia – is on the right track with a bank with a low price/book.

    Quote 4 hasn’t had a right answer either, yet – the way to approach that one is to think which firm it might be about, then who might be writing an official report about them.

    The final reg one isn’t that hard: try BCBS 157…

  10. Let me have another go, then (even if it’s with help).

    I still can’t quite figure out the middle bank, and without a terminal I’m going to have to go with BBVA (not sure, though).

    Quote four is, I believe now, from the ‘Report of the Trustee’s Investigation and Recommendations’ on MF Global and concerned their repo-to-maturity trades, downgrades, margin calls, and so on.

    And, finally, for BCBS 157, I’m going with 20. For reasons why that *might* not be a good idea, see graphs 4a through 5d from this paper: http://www.nber.org/chapters/c11794.pdf (I do appreciate one can’t draw a straight line from then till now, etc.) – still though!

    Cool quiz. Merry xmas and happy new year!

    Cheers,
    Simon Hinrichsen

  11. Great post, really enjoyed it!
    — Charley