Category: regulation

regulation

Securitization is nothing more than unrecorded leverage

Colin Henderson

I could not agree more with this quote from Niall Ferguson.  The problem is leverage, and securitization is nothing more than leverage that is not appropriately recorded on the balance sheet.  There is no amount of regulation, bank taxes or bonus taxes that will decrease the propensity for the next crisis until that simple recognition is agreed. Niall Ferguson: This Crisis Didn’t Happen Because Banks Were Too Big | Clusterstock "I don’t think it was really the banks’ involvement in hedge funds that were nearly as much of a problem as banks involvement in securitized MBS collateralized debt obligations." Technorati … Continue reading Securitization is nothing more than unrecorded leverage

regulation

Real Time Solutions for US Financial Reform | NYU Stern Working Group on Financial Reform

Colin Henderson

On Vox, the authors noted have a new ebook (pdf) that paints a quite complete picture of the elements for consideration in financial services regulatory reform. Real Time Solutions for US Financial Reform Viral Acharya Thomas F. Cooley Matthew Richardson Ingo Walter 15 December 2009 The NYU Stern group – authors of the influential book Restoring Financial Stability: How to Repair a Failed System – have completed a new ebook that assesses the strengths and weaknesses of the US financial reform legislation. This column introduces the new ebook. FYI, here is the ToC.  Click through for the book in pdf. … Continue reading Real Time Solutions for US Financial Reform | NYU Stern Working Group on Financial Reform

regulation, UK3 Comments

On Bank Systemic Risk, International Integration and Capital Requirement | Turner Discussion Paper

Colin Henderson

There has been much talk of systemic risk since the financial crisis hit. I see it more as a crisis of banking and banking confidence, and the debate on systemic risk is critical because it exists because of Government intervention and protections, implicit and explicit. The latest from Lord Turner of the FSA is a discussion paper, that reviews systemic risk and provides as good a discussion on that topic as I have seen. What it particularly interesting is how the insights raise the prospect of penalising globally integrated banks over nationally independent organizations with higher capital requirements. Things just … Continue reading On Bank Systemic Risk, International Integration and Capital Requirement | Turner Discussion Paper

regulation

US releases draft regulatory framework for Financial Institutions

Colin Henderson

The US administration released a draft of their proposed regulatory framework today, putting the Federal Reserve front and centre. The big theme is to promote broader control of any institution involved in banking, and to specifically eliminate exemptions such as the Thrift Charter. Draft Fed report on Financial Institution Regulation pdf – 85 pages Continue reading US releases draft regulatory framework for Financial Institutions

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Bank capital levels around the world are low and sufferring

Colin Henderson

The IMF report had a spreadsheet in the appendix with bank capital levels around the world. While it has individual countries, I summarised into this chart.  The data shows Capital as a percentage of Assets so higher is good, lower is bad. Note the negative trends in most except Canada, and this is based on the latest data to end of 2008.  Use the thumbnail for a larger version that is clearer. Continue reading Bank capital levels around the world are low and sufferring

regulation

U.S. Planning to Reveal Data on Health of Top Banks

Colin Henderson

I saw somewhere earlier that the President was planning a major economic speech tomorrow, and now this below is finally coming after being delayed while some banks announced.  This probably explains the context. U.S. Planning to Reveal Data on Health of Top Banks | NYT WASHINGTON — The Obama administration is drawing up plans to disclose the conditions of the 19 biggest banks in the country, according to senior administration officials, as it tries to restore confidence in the financial system without unnerving investors. Continue reading U.S. Planning to Reveal Data on Health of Top Banks

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G20 draft communiqué & FT interview with Obama indicate more regulation coming to Banks

Colin Henderson

Lionel Barber at the FT interviews US President Obama in advance of the G20 meeting Thursday.  Despite the broad sweeping answers it seems unlikely that we will see much tangible outcome from the session, but the G20 draft communiqué (below) is clear about stronger regulation. Obama interview: Full text | Financial Times FT: Let’s talk about the G-20. What will be your benchmarks for success? Obama: The most important task for all of us is to deliver a strong message of unity in the face of crisis. There’s some constituent parts to that. Number one, all the participating countries recognise … Continue reading G20 draft communiqué & FT interview with Obama indicate more regulation coming to Banks

regulation

The Turner Review: a regulatory response to the global banking crisis

Colin Henderson

Here is the Turner Review commissioned by the Chancellor of the Exchequer.  Martin Wolf reviews here at the Financial Times.  Wolf argues it is a watershed for finance making this excellent point – “The most important analytical points are that individual rationality does not ensure collective rationality, that individual behaviour is frequently less than rational and that, in consequence, markets can overshoot, in both directions. Above all, such failings create systemic risks: if everybody believes in the same (faulty) risk models, the system will become far more dangerous than any individual player appreciates; and if everybody relies on their ability … Continue reading The Turner Review: a regulatory response to the global banking crisis

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Bank nationalisation by a thousand cuts is distracting us from the root problem

Colin Henderson

In the series “The Great Unwinding” last week two types of banks, Financial Utilities and Risk Takers were highlighted to appear.  This direction received strong support this weekend with Alistair Darlings order to perform a complete review of bank practices. The review is the not so thin edge of a large wedge when the ramifications are considered. The chancellor said on Sunday that the review would look at risk management by boards including how pay affects risk taking; it would also look at the way boards operate and the role of institutional investors. … Mr Osborne (Shadow Chancellor)  added: “The … Continue reading Bank nationalisation by a thousand cuts is distracting us from the root problem

Business Models, Economy, regulation

banking 101 | All banks are vulnerable to runs

Colin Henderson

This is a fascinating and insightful paper by Willem Buiter and Anne Sibert on the failure of the Icelandic banking system, but with scary parallels to the UK system and others.  In particular though, and of interest to everyone possibly is section 2.1 copied below in full.  It defines the generic vulnerability that all banks’ have to “run a on the bank” even in good times. Thus the argument goes, accept reality, nationalise the banks, and treat basic banking as a utility, just like water and electricity, until a better model can be developed that would have a better chance … Continue reading banking 101 | All banks are vulnerable to runs