Category Archives: Bankruptcy treatment

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Leading crisis experts are trying to get our attention

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When three of the economists most knowledgeable about the financial crisis of 2007-2008 start jumping up and down, waving their arms and shouting “fire!” … maybe we should listen? That’s happening now. Three prominent economists are calling for a solution to … Continue reading

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Lenders, not borrowers, were the driving force behind the financial crisis

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Editor’s note: RepoWatch would like to recognize Financial Times editor Gillian Tett, whose August 11 column about the Pozsar report proves once again that she is far ahead of other journalists in her understanding of the core issues facing financial … Continue reading

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The repurchase market has become Too Big To Fail

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Commentary From the editor: Have the U.S. and Europe reached the point where borrowers can not be allowed to default on their debt, and their lenders or investors can’t be forced to eat any losses, if financial institutions are widely using the debt as collateral … Continue reading

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London conference: More calls to fix bankruptcy exemption for mortgage-backed repos

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The special bankruptcy treatment extended to repurchase agreements in 2005 played a critical role in the financial crisis of 2007-2008, and changes must be made, experts cautioned at a financial conference in London June 1.   The warnings came just … Continue reading

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Hoenig says nix the bankruptcy exemption for mortgage-backed repo

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Thomas M. Hoenig, the president of the Federal Reserve Bank of Kansas City, says in a May report that the special bankruptcy treatment extended to mortgage-backed repos in 2005 must be reversed to prevent future financial crises. In 2005 Congress said repo lenders … 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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NYU: Most of the leverage was in repos

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“Repo financing was the basis of most of the leveraged positions of the shadow banks.” From RepoWatch’s view, that’s the key sentence in “Regulating Wall Street,” a November 2010 book authored by New York University Stern School of Business professors Viral … Continue reading

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Dutch economist: tax repos’ bankruptcy exemption

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Writing for a leading network of economic researchers in Europe, a Dutch economist is calling for a tax on the exemption that repurchase agreements enjoy in bankruptcy court. The exemption means that when a repo borrower goes bankrupt, the repo … Continue reading

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Proposal: Limit securitized banking to special banks

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Securitized banking is worth saving, and that can best be done by creating special banks to buy the securities, say Yale professors Gary Gorton and Andrew Metrick, early proponents of the view that the financial crisis of 2007-2008 was a … Continue reading

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Commentary: Repos must be reformed

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The repurchase market must be reformed, say two New York University professors and leading analysts of the financial crisis of 2007-2008. “Although one of the main concerns of the Dodd-Frank Wall Street Reform and Consumer Protection Act soon to be signed by … Continue reading

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ECB director: Collateralized financing with repos is the future

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The key developments in banking in the past 30 years are the rise of securitization and collateralized finance, primarily repurchase agreements, according to Lorenzo Bini Smaghi, a member of the executive board of the European Central Bank, speaking at the … Continue reading

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2005 Bankruptcy Act impacted repos and housing bubble

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The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 had a profound impact on the repurchase market, the housing bubble and the financial crisis of 2007 and 2008, several bankruptcy experts have concluded. Regarding repo, the act added mortgages … Continue reading

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Tett: ‘Trouble for the mighty repo’

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Bankers are worried Congress will require them in the future to absorb losses of up to 20 percent on repo loans they make to borrowers that later fail. This issue could have big consequences and deserves watching, writes Financial Times … Continue reading

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Putting repo lenders’ skin in the game

A congressional proposal to force lenders to have more “skin in the game” could make repo lenders less willing to lend, writes Reuters columnist Agnes T. Crane November 23. Representatives Brad Miller of North Carolina and Dennis Moore of Kansas … Continue reading

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Salmon: Give those repo lenders skin in the game

Reuters columnist Felix Salmon likes the Miller-Moore amendment, which would cause repo lenders to lose up to 20 percent of their collateral when the bank they’ve made the loan to fails. From one of two columns on November 20: This … Continue reading

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2005 Bankruptcy Act increases systemic risk

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When a repo borrower files bankruptcy, the repo lender has no worries. His collateral is exempt from the bankruptcy, thanks to a 1984 law that said bankrupt borrowers must immediately repay their repo loans in full. The purpose of the … Continue reading

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FDIC remarks about repos are “really, really important”

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FDIC chairman Sheila Bair recently said secured lenders should have to carry more of the cost of bank failures. Joseph Mason, banking professor at Louisiana State University, saw that news reported by Bloomberg October 5, 2009, and he doesn’t think … Continue reading

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Bankruptcy protection backfired, critics claim

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A change in the U.S. bankruptcy code in 2005, intended to insulate financial institutions from systemic risk, instead hastened the demise of Bear Stearns, Lehman Brothers and American International Group, some experts told the Financial Times. Industry trade associations defended … Continue reading

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Too risky for bankruptcy is too risky to do

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In the midst of financial turmoil on Wall Street, some experts are pointing to bankruptcy laws as one reason for the crisis. Here’s their concern: Several financial assets including repurchase agreements are exempted from bankruptcy control. This means, for example, … Continue reading