Monthly Archives: April 2011

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Repo fraud “happens all the time,” says convicted Farkas

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Securitized banking has its first 21st Century big-time crook. Lee B. Farkas, chairman of one of the largest privately owned mortgage lending companies in the U.S. when it collapsed in 2009, was convicted by a jury April 19 of a … Continue reading

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Thoma: “Critical vulnerabilities remain”

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Get ready for the next financial crisis, cautions University of Oregon economist Mark Thoma in his April 23 blog Economist’s View. That’s because we have not taken, and are not likely to take, the needed steps to prevent runs on … Continue reading

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How will the FDIC unwind repos?

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The Dodd-Frank Act gave the FDIC the job of resolving systemically important financial institutions when they are in financial trouble.  How will the FDIC handle that company’s repos? An FDIC report April 18 gives the answer. It will sell them … Continue reading

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Will ‘ring-fencing’ work better than ‘firewalls’ did?

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We’re hearing a lot about “ring-fencing” these days. That sounds suspiciously like “firewalls” to some of us who covered the S&L calamity 20 years ago. Sheila Bair, chairman of the Federal Deposit Insurance Corp., thinks bank holding companies should ring-fence their investment banking operations … Continue reading

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Russia conducts first survey of its repo market

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The Russian Repo Council conducted it first biannual survey of the Russian repo market December 1, 2009, to May 31, 2010. The survey was designed with the help of the European Repo Council, which has conducted biannual repo surveys since … Continue reading

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Economists: Finance needs to be measured in new ways

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A new paper by three economists shows how far finance has come from the days when banks took in deposits and used the money to make loans. Today that same bank might augment those deposits by borrowing on the repo market … Continue reading

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An idea for enforcing ‘skin in the game’

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Joining the growing chorus of economists who are calling for financial institutions to finance themselves with more equity and less debt, a new study recommends two levels of capital. To the core capital requirements already applied to banks today, the … Continue reading

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Accountants failed again in the financial crisis

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A U.S. Senate subcommittee held a hearing April 6 on “The role of the accounting profession in preventing another financial crisis,” and hardly anyone paid attention, probably because no one believes accountants are financial watchdogs anymore. Certainly they don’t seem … Continue reading

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Securitized banking fueled by myths

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Four myths made securitized banking seem safe before the financial crisis, Eric S Rosengren, president of the Federal Reserve Bank of Boston, said in a speech at Boston University February 28. Securitized banking is securitization financed mainly with repo loans. This is … Continue reading

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Basel rules let equity vary widely among banks

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JP Morgan CEO Jamie Dimon claims European banks are calculating their risk more leniently than U.S. banks do. This makes U.S. banks have to run their operations with more equity than do European banks, and that eats into profits. Now … Continue reading

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Repos and shadow banking system still need reform

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While the new Financial Stability Oversight Council tries to identify and then supervise systemically important financial institutions, as required by the Dodd-Frank Act, two other important issues still need attention, said Federal Reserve Board member Daniel K. Tarullo in a … Continue reading

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Basel’s weak repo-related ratios get little attention

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While much attention seems to be focused on setting higher equity requirements for financial institutions, in hopes they can better survive a financial crash, little attention is being paid to the two rules that would deal directly with the financial panic of 2007-2008 and the run on … Continue reading

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Economists offer ways to measure and monitor systemic risk

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Economists have produced several studies showing ways the new Office of Financial Research and other experts might measure systemic risk and identifying useful data to spot rising risk. The important point is that regulators were not collecting needed data before the financial criis of 2007-2008, … Continue reading

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A list: Experts who want to break up the big banks

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(last updated:  February 5, 2013) A growing chorus of economists, analysts and other observers are calling for the mega-banks to be broken into smaller pieces. Whatever the cause of the finanical crisis of 2007-2008, the first step toward a solution … Continue reading

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WSJ: Securitized banking making a comeback with REITs

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Borrowing on the repurchase market to invest in residential mortgage-backed securities, which was the main systemic risk that caused the crisis in banking in 2007-2008, is making a comeback with REITs, according to the Wall Street Journal April 13. From … Continue reading

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WSJ: ‘Investors’ hot for riskier mortgage securities

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Investors are “climbing over each other” to invest in higher-yielding mortgage securities like those issued by PennyMac, which RepoWatch wrote about December 9, according to the Wall Street Journal April 11. These securities pay a higher return because they are … Continue reading

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Commentary: Important new Office of Financial Research is ‘wobbly’

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The Office of Financial Research, considered by some to be the most important provision in the Dodd-Frank Act, is “wobbly,” says Barbara Rehm, American Banker’s editor at large, in her April 14 column. The Office of Financial Research is supposed … Continue reading

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Banks continue to try to game capital requirements

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To see why requiring investment and commercial banks to have more equity is a risky way to prevent the next financial crisis, one need look no further than the April 13 Wall Street Journal story “Deutsche maneuvers around new law.” … Continue reading

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RepoWatch: Reporters made mistake of letting ‘experts’ frame the crisis story

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Don’t let businesses and politicians frame the story for you, cautioned Don Barlett and Jim Steele, America’s most famous investigative reporting duo, at the annual meeting of the Society of American Business Editors and Writers in Dallas April 7-9. Sadly, … Continue reading

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Bernanke discusses clearinghouses but not tri-party repo

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Federal Reserve Chairman Ben Bernanke gave an important speech about systemic risk and the “plumbing” of the financial system April 4 and never mentioned the repurchase market. He especially talked about clearinghouses and clearing systems and their importance in managing … Continue reading