Its been while not posted about the regulatory stuff as in the past I’ve frequently expressed concern that the legacy of Dodd-Frank will be to promote artificial consolidation of the banking industry by driving small banks out of business and making large banks even more “Too Big to Fail.” This is for two reasons.
The first reason would be if Dodd-Frank perpetuates the so-called TBTF subsidy. This is the idea that being designated too big to fail creates an implicit government guarantee for creditors that permits large banks to access capital markets more cheaply than non-TBTF banks. Whether there is a continued subsidy, and if so, how large, seems to be still somewhat undetermined at this point. Continue reading “The Regulatory Burden on Smaller Banks through The Dodd- Frank”
NEW HAVEN – The global economy could be in the early stages of another crisis. Once again, the US Federal Reserve is in the eye of the storm.
As the Fed attempts to exit from so-called quantitative easing (QE) – its unprecedented policy of massive purchases of long-term assets – many high-flying emerging economies suddenly find themselves in a vise. Currency and stock markets in India and Indonesia are plunging, with collateral damage evident in Brazil, South Africa, and Turkey.
The Fed insists that it is blameless – the same absurd position that it took in the aftermath of the Great Crisis of 2008-2009, when it maintained that its excessive monetary accommodation had nothing to do with the property and credit bubbles that nearly pushed the world into the abyss. Continue reading “The Next Global Crisis could be in Formation”
The Topic is not new but the confusion still prevails to many, In the past have already done 4 post on it , the short link been shared below the article.
There is much confusion about what shadow banking is. Some equate it with securitisation, others with non-traditional bank activities, and yet others with non-bank lending. Regardless, most think of shadow banking as activities that can create systemic risk. This column proposes to describe
shadow banking as ‘all financial activities, except traditional banking, which require a private or public backstop to operate’.
Backstops can come in the form of franchise value of a bank or insurance company, or a government guarantee. The need for a backstop is a crucial feature of shadow banking, which distinguishes it from the “usual” intermediated capital market activities, such as custodians, hedge funds, leasing companies, etc. Continue reading “Shadow Banking”
Well this is brilliant on Saturday as a read 🙂
The Federal Reserve is awaiting
That prices may start re-inflating,
So they can foresee
Whose tapering they’ve been debating.
The Fed will not bother to taper
Its purchase of Treasury paper
‘Til the jobless rate now
And inflation allow
An end to their stimulus caper.
To avoid causing stock volatility
‘Til he can discern
A sustainable turn
To price and employment stability.
In one of the speech by Jeremy Stein a Federal Reserve Governor brought on board just last year,received a lot of attention for its suggestion that monetary tools might be used in addressing credit market-overheating. That is an interesting argument, but I don’t want to deal with that today. Rather, I want to look at Stein’s comments on collateral transformation:
Collateral transformation is best explained with an example.
Imagine an insurance company that wants to engage in a derivatives transaction. To do so, it is required to post collateral with a clearinghouse, and, because the clearinghouse has high standards, the collateral mustbe “pristine”–that is, it has to be in the form of Treasury securities. Continue reading “Credit Markets – Collateral and Margin calls”