Category Archives: Capital requirements

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Don’t touch my repo

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The repo industry has dire warnings for anyone who wants to rein in its market. The warnings are a sobering, inside look at how important the repurchase market has become to the world’s flow of credit. From the International Capital … Continue reading

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Shadow banking, part 2: Lack of shadow master plan means impact of new rules is uncertain

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The shape of shadow banking reform is now clear. Congress and regulators are going to put a bunch of new rules in place, but they’re not going to articulate a coherent vision of what shadow banking should, or should not, … Continue reading

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Why banks had so much skin in the game

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One of the great surprises of the financial crisis of 2007-2008 was that commercial and investment banks held one-fourth of the mortgage-backed securities they’d supposedly sold to investors. This surprise shot a big hole in the pre-crisis theory that securitization … Continue reading

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Banks prepare to fight Basel’s repo-related ratios

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The only rules that have been proposed specifically to lessen the systemic risk caused by the repurchase market will force the largest banks to do business in a more cautious way, and the banks are gearing up to fight them, … 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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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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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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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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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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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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Do repo and other risks still threaten the world economy?

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As regulators try to force commercial and investment banks to have more equity and less debt, by raising their capital requirements, the banks continue to find ways to evade the rules as they did leading up to the financial crisis … Continue reading

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New capital requirements possible for tri-party clearing banks

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The New York finance lawyer who blogs at Economics of Contempt is predicting the Fed will require the tri-party repo clearing banks, JP Morgan Chase and Bank of New York Mellon, to have enough equity, and enough ready cash or … Continue reading

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Study on crisis leverage barely mentions repos

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Most of the leverage in the shadow banking system comes from repurchase transactions, but a new study of the build-up of bank leverage 2000-2009 barely mentions it because of the difficulty of getting repo data. The study shows that commercial … Continue reading

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Admati: Banks will be stronger with more equity

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  Expanding on an August 27 study that urged regulators to require banks to fund themselves with much more equity and less debt, four economists said today that in the real world banks have both equity and debt, and moving to … Continue reading

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Let borrowers assume more of the risk

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Here’s an idea: Instead of requiring banks to have more capital, or equity, how about requiring borrowers to have more capital? For example, instead of letting banks make 10-percent-down home loans, only allow them to make 20-percent-down home loans.  Instead of repo … Continue reading

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Central banker sees little progress toward financial reform

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It’s sobering to be reminded of how little we’ve accomplished toward preventing another financial crisis. In a London speech March 10, Axel Weber, the president of German’s central bank, ticked off three areas that need to be fixed: (1) Require banks … Continue reading

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Coming out of the shadows

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There are two ways to regulate shadow banking and the repurchase market to prevent a repeat of the credit crisis in 2007 and 2008, says economist Viral Acharya in a March 8 article in The Banker, “Coming out of the … Continue reading

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Admati: Banks need much more capital

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Stanford professor Anat R. Admati argues in a Bloomberg column today for much higher capital requirements for banks and urges regulators to disregard “empty” threats from bankers that higher capital requirements will restrict credit and hurt the recovery. She notes … Continue reading

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One way to spot a bubble

One way to spot a developing financial bubble would be to track the non-deposit liabilities of banks, including repos, says Princeton University professor Hyun Song Shin in a November 22, 2010, study, “Macroprudential policies beyond Basel III.” Financial Times columnist … Continue reading

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Economists: Another disaster is on the way

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Economists gathered at the annual meeting of the American Economic Association in Denver say global financial reforms aren’t nearly enough to avert another disaster, according to  a January 9, 2011, story by The Wall Street Journal. One issue is bank … Continue reading