Many a banker has fretted about the status their employer bestows upon them by mere brand value. Exactly which firms are first tier, second tier, or even the possibly outdated ‘Bulge Bracket’ matters.
Of course the latest crisis has practically made it a requisite to roll one’s eyes when name-dropping any bank at all in the presence of friends who work outside of the financial sector. The my-employer-is-more-awesome-than-yours game works in increasingly fewer circles. Read more
Banks are interconnected, and carry systemic risk to the economy. One doesn’t need the experience of a crisis to know this, it’s just intuitive.
On a similarly intuitive basis, are insurers systemically important? Read more
As FT Alphaville revealed on Monday, more than 98 per cent of credit derivatives contracts are recorded in the trade repository run by The Depository Trust and Clearing Corporation. This demonstrates that this previously opaque market is much more transparent than it used to be.
In Tuesday’s FT, Conrad Voldstad, the chief executive officer of trade organisation ISDA, rammed the point home and was on top form espousing the merits of credit default swaps. Read more
On Friday, the Financial Stability Board published the provisional list of global systemically important financial institutions (G-Sifis).
This had been widely trailed but we’re still wrestling with a tricky question: Read more
The CoCo death spiral is the process by which the expectation of a swathe of bank-issued Contingent Convertible (CoCo) debt converting into equity can exacerbate share price declines.
- We constructed a valuation model calibrated on the CoCos of Lloyds and CS. Read more
The Financial Stability Board on Monday night declared the capital surcharge requirements for global ‘SIFIs’, as drafted by the Basel Committee last month, shall go ahead. Ditto “living wills”.
The real fun will come later this week, when the methodology for determining who is a G-SIFI will be published, along with proposals for measures that can be taken to deal with failing SIFIs, such as the living will. Read more
Officials fighting the next financial crisis may again bail out banks using the public purse, S&P has said, in an opinion that casts doubt on one of the fundamental tenets of US financial reform. The FT reports the rating agency said that the US Treasury, Federal Reserve and Congress might rescue a large financial group rather than allow it to fail like Lehman Brothers. Dodd-Frank, the legislation signed into law a year ago next week, was supposed to prevent bail-outs by allowing the government to seize and wind down safely an ailing “systemically important financial institution”, or Sifi. But in a research note, S&P said: “We believe the government may try to avoid contagion and a domino effect if a Sifi finds itself in a financially weakened position in a future crisis.”
…Around the world, and (potentially) sat on the face of the global recovery.
And it’s all because of one little speach by Daniel Tarullo. The Federal Reserve Board governor took to the Peterson Institute stage on Friday to recommend that systemically-important financial institutions (SIFIs) increase their capital ratios by 20 per cent to 100 per cent over their current levels. Read more
Global regulators are seeking ‘graduated’ capital surcharges for the world’s biggest banks that increase with their size and connections to other lenders, the FT says. The Financial Stability Board has coalesced around placing three to six ‘gradations’ of extra capital on top of Basel requirements for the lenders designated ‘systemically important’ by the FSB later in 2011, regulators told the FT. The charge will disadvantage top-tier US and European banks versus their second-tier compatriots and their more domestically-focused Chinese and Japanese rivals. The FSB next has to decide on whether the Sifi charge should take the form of equity or should allow contingent capital to be included.
The world’s biggest banks are likely to face graduated capital surcharges that increase progressively based on a lender’s size and connections to other banks, global regulators have told the FT. The proposals would benefit the huge, but domestically focused, Chinese and Japanese banks and second-tier European and US banks. Financial regulators and central bankers from the biggest economies, meeting as the Financial Stability Board, are trying to determine which banks are systemically important financial institutions, or Sifis, and how much additional top-tier capital they must hold against unforeseen losses. Three participants in the process said support has grown for the idea of graduated charges, although some countries are still hoping for a flat requirement. The FSB is due to propose criteria for selecting Sifis in July and formal proposals on the surcharge at the G20 summit in November.