Posts filed under “Derivatives”
Today’s chart comes from a research letter by the Federal Reserve Bank of San Francisco. The letter, “Bank Counterparties and Collateral Usage,” examines the relationships between bank-holding companies and their trading partners in the over-the-counter derivatives markets. The chart focuses on concentration, liquidity and net exposure to derivatives.
The Criminology of the “Sure Thing” Portrayed as “Risk” John Coates, a former derivatives trader at Goldman Sachs is now a researcher. He wrote a column in the New York Times entitled “The Biology of Risk” that I hope will be widely read. In this column I explain why his most important conclusions cannot follow…Read More
Crisis Chronicles: The Commercial Credit Crisis of 1763 and Today’s Tri-Party Repo Market James Narron and David Skeie Liberty Street Economics February 07, 2014 During the economic boom and credit expansion that followed the Seven Years’ War (1756-63), Berlin was the equivalent of an emerging market, Amsterdam’s merchant bankers were the primary sources…Read More
Blackstone & Codere amantha Bee investigates the shady, totally legal business dealings of a private equity firm called Blackstone.
Here is the original article: Blackstone Unit Wins in No-Lose Codere Trade: Corporate Finance
Internal e-mails implicate credit rating agencies in the 2008 financial crisis.
Money Boo Boo
Monday June 24, 2013 (04:33)
Jason Jones teaches regulation-loving Canadian bankers the advantages of harmless free-market fun.
Money Boo Boo – The Canadian Banking System
Monday June 24, 2013 (05:49)
Matt Stoller writes: Earlier this week, the House Ag Committee marked up some bills deregulating derivatives. I don’t think they were expecting anyone to really notice, but there was a bunch of press on what they did. The next step in the legislative process is for the House Financial Services Committee to look at the…Read More
Satyajit Das is author of Traders, Guns and Money (2006) and Extreme Money: Masters of the Universe and the Cult of Risk (2102)
It would be ironic if Cyprus, one the smallest countries in Europe with little over 1 million people and about 0.5% of the European Union (“EU”) economically, were to prove a key inflexion point in the crisis.
Since June 2012, it has been known that Cyprus needs around Euro 17-18 billion to recapitalise its banks (around Euro 10 billion) and for general government operations including debt servicing (around Euro 7-8 billion). While small in nominal terms and well within EU’s resources, the amount is large relative to Cyprus’ Gross Domestic Product (“GDP”) of Euro 18 billion. It is unlikely that Cyprus can realistically repay it, in the absence of a dramatic change in its circumstances such as the mooted oil and gas reserves in the Eastern Mediterranean.
The various options considered to generate the required funding included: privatisation of state assets, increases in corporate taxes (from 10% to 12.5%) and withholding taxes on capital income (to 28%) and restructuring of existing bank or sovereign debt. Debt restructuring options included a “bail-in” of creditors (the new fashionable term for a write off of principal). It would also entail easing terms and lengthening maturities of (up to) Euro 30 billion in loans from Russian banks to Cypriot companies of Russian origin.
The package proposed by the EU incorporates almost all of the above measures. Most controversially, ordinary depositors will face a “tax” on Cypriot bank deposits, amounting to a permanent write down in the nominal value of their deposits. The deposit levy will be 6.75% on deposits of less than Euro 100,000 (the ceiling for European Union account insurance) and 9.9% for deposits above that amount. In return, the depositors will receive shares in the relevant banks.
The unprecedented write down of bank deposits expected to raise around Euro 5.8 billion is motivated by a number of factors.
Firstly, International Monetary Fund (“IMF”) participation requires the debt level to be sustainable. The write off of depositors reduces debt and also the size of the required bailout package to Cyprus to Euro 10 billion.
Secondly, Cypriot banks have limited amounts of subordinated or senior unsecured debt. This means that a write down of bondholders would only raise between Euro 1 and 2 billion, below the required amount.