Posts tagged 'Regulatory Arbitrage'

Anti-Abacus, anti-BISTRO and anti-balance sheet synthetic securitisation


Close your eyes, lay back and imagine yourself as a regulator at the US Securities and Exchange Commission (do we have to? -ed). Read more

Cut and paste – your guide to ‘economic’ vs ‘regulatory’ liquidity

Are you a bank agonising over whether to keep your triple A-rated covered bonds as part of your liquidity buffer or send them to the European Central Bank? Not sure what to do with your AA-rated non-financial euro corporate debt?

Then you need this handy table from BofAML’s structured finance guru, Alexander Batchvarov. Read more

The inevitability of shadowy banking (and how to regulate for it)

FT Alphaville decided earlier this week that we are sick of the term “shadow banking”. We’ve failed to come up with an alternative, however, and in the meantime Edward Kane, a professor at Boston College, has presented a paper entitled “The inevitability of shadowy banking” at the Atlanta Fed-hosted financial markets conference.

Kane’s paper says shadowy banking is basically safety-net arbitrage. He defines it thus: Read more

Barclays visits the securitisation BISTRO

FT Alphaville has outlined how securitisation is getting back to its roots lately, allowing banks to reduce capital holdings at a time when fresh capital is hard to come by.

Basically, they buy protection on slices of their own assets, paying out handsome coupons to hedge funds and other investors to take on the assets’ risk. Ergo, less capital needs to be held by the bank to back this risk. Read more

Back to the BISTRO for today’s securitisations — Part 2

In Part 1, FT Alphaville discussed the recent resurgence of so-called “BISTRO-type” securitisation deals. These allow banks to lower their capital requirements and defer losses by buying protection on portfolios of assets.

The Basel Committee issued a letter about such securitisation deals in December, effectively warning banks that over-engineering purely to reap regulatory capital benefits would not be tolerated. More recently, the head of the Financial Stability Board has called for the shadow banking sector, where the risk from such deals is offloaded, to be dragged into the harsh light of day. Read more

Back to the BISTRO for today’s securitisations — Part 1

The airwaves are once again aflutter with tales of the “shadow banking” sector, owing to the chief of the relatively new Financial Stability Board.

As the FT’s Tracy Alloway also recently reported, the sector was already back to its pre-crisis size at the end of 2010 at a healthy $60,000bn of assets. Read more

How to arb Basel II

In a previous post, we detailed trades that while making no sense economically, allow banks to game regulations around capital requirements and kick the recognition of losses further down the road.

This may have left you wondering how this is possible under the Basel II regulations, so we thought we’d walk you through the relevant sections, and outline the cases where this trade does, and doesn’t, work. Read more

More Angry Birds, less regulatory arbitrage, please

The notice was rather vague, but we’ve done some sleuthing and have a better picture of what’s been going on now.

The timing of the letter struck us. The deadline for the great European bank recapitalisation isn’t far off (June 2012), but the conditions specified by the European Banking Authority cut off some of the most obvious routes, given the difficulty in tapping the funding markets: deleveraging and model tweakageRead more

Regulatory arbitrage: Basel is watching you

Nearly a year ago, the Federal Reserve came out with a letter that in summary said something along the lines of:

Dear Banks, Read more

US banks plead to limit range of swap rules

US banks are urging regulators writing new rules for the derivatives markets under 2010’s Dodd-Frank Act to keep their hands off the banks’ swaps businesses in London and other overseas financial centres, the FT reports. The lobbying efforts highlight the fact that regulations are being written at different speeds in different countries, allowing for “regulatory arbitrage”, which officials have sought to stamp out.

The where and what of regulatory arbitrage

Get the little flags at the ready: on Tuesday JP Morgan Cazenove published the final installment of its trio of reports on regulatory arbitrage.

It is stirring patriotic sentiment up on Capitol Hill, with some lawmakers worried that the US’s comparative advantage will be blunted, according to PoliticoRead more