And we're back!
Started by Tamas, May 25, 2022, 05:15:04 AM
Quote from: Sheilbh on March 16, 2023, 11:09:34 AMObviously not the same as 2008 - but can't help but have slight flashbacks with the ECB simultaneously warning some European banks are in a similar position as Credit Suisse and hiking rates
Quote from: Tamas on March 16, 2023, 11:12:25 AMWell what is the option? Let inflation rise to avoid the more reckless/incompetent banks to get into trouble? Why, they will be just bailed out anyhow.
Quote from: HVC on March 16, 2023, 10:18:17 AMThey did all right in their salaries and bonuses before the shit hit the fan. The phrase, again as I understand it, is upper management reaps the reward of higher risk knowing that any fallout will be covered by the public at large.
Quote from: grumbler on March 16, 2023, 01:49:17 PMHigher management works for the shareholders, who in this case were pretty much wiped out. The shareholders are actually the ones reaping the rewards of higher risk knowing that they will take a haircut or get wiped out by the fallout.Is there an incentive for the execs to pursue short-term gain over long-term prosperity? Yes, the same as any other company. The public takeover of a bank doesn't represent the execs "doing pretty well," given that one of the things that evaporates is their job.
Quote from: Alfonso PeccatellioThe US banking regulation and accounting frameworks have some pretty big flaws.Yep, you read that right.1. Banks with a balance sheet below $250 bn can act a lot like cowboys...No need to adhere to NSFR (Net Stable Funding Ratio), a rule that forces large banks to have a good proportion of their liabilities in sticky, long-term funding which limits liquidity risks.No need to adhere to LCR (Liquidity Coverage Ratio): ''small'' banks can buy a disproportionate amount of less liquid securities like corporate bonds or mortgage-backed securities instead of Treasuries.The problem is that a $249 bn balance sheet bank is not small.For reference, a top 3 German bank has a balance sheet of less than $200 bn – seriously, top 3 in Germany.This lax regulatory treatment for ''small, but not so small'' banks is very dangerous.2. Even large banks booking bonds in HTM are disincentivized (!) to hedge interest rate risksHTM = friendly accounting: book bonds there, forget about them as they are valued at amortized cost.Prudent risk management still suggests you should hedge interest rate risk.Yet, US accounting rules disincentivize interest rate hedging for HTM bonds – nuts.But the cherry on the cake...3. No proper interest rate risk stress testing (!!!)Guys, this is out of this world.As we will discuss, Europe has a quite extensive framework to stress test the interest rate risk that European banks take on their aggregate balance sheets (the net exposure deriving from loans, mortgages, bond investments, bond issuance, long-term liabilities and swaps).It's called IRRBB (Interest Rate Risk in Banking Books) stress-testing.The US equivalent? It doesn't exist!Here is the IMF calling US regulators out on the topic:Please take a second to reflect on how bad this is.''Small'' US banks are subject to much laxer regulatory requirements.But even large US banks are disincentivized from hedging rate risk on HTM bonds and even worse they are not subject to extensive stress testing on the overall interest rate risk they run on their balance sheets.Europe has much tighter regulatory standards and accounting framework, and yet the panic seems to be spreading there too.
Quote from: HVC on March 16, 2023, 03:47:44 PMSo now I don't know if this guy is trustworthy.
Quote from: Zanza on March 16, 2023, 03:45:03 PMThere are nine banks with a balance sheet of more than 200 bn USD in Germany, five private, four public.
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