February 2012
83 posts
CDS: Timeline for Physical Settlement
Is Risk Rising in the Tri-Party Repo Market? →
Oil Price in € (Brent) Chart
Oil Price in € (WTI) Chart
Eurozone Sovereign Rating And Country T&C... →
“A T&C assessment may change sharply if a sovereign introduces a new local currency, by entering or exiting a monetary/currency union, or through some other means. This is because the new local currency, and in some cases the new monetary authority, may operate in very different monetary and exchange regimes. The T&C assessment does not reflect the likelihood of change in a...
ISDA POPS the question wrt Greece CDS
Does the announcement of the passage by the Greek parliament of legislation that approves the implementation of an exchange offer and vote providing for collective action clauses (“CACs”) that impose a “haircut amounting to 53.5%” (MINFIN Announcement, 2.21.2012) that “shall bind the entirety of the Bondholders [of eligible instruments]” (First Article, Section 9), constitute a Restructuring...
Eurozone: Overnight deposits rates (households)
At the E.C.B., the Tweak That Quietly Saved the... →
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More MMT Nonsense from Randall Wray
In the case of a modern “fiat” sovereign currency, what does the government promise? To “redeem” its currency in tax payment. When the fighter plane producer pays taxes, the keystrokes are reversed: the deposit is debited and the bank’s reserves at the Fed are debited. Presto-change-O the sovereign currency disappears in redemption.
Did you know that? You pay taxes and the sovereign currency...
Greece GDP-Linked securities
Each participating holder will also receive detachable GDP-linked Securities of the Republic with a notional amount equal to the face amount of the New Bonds received by that holder. The GDP-linked
Securities will provide for annual payments beginning in 2015 of an amount of up to 1% of their notional amount in the event the Republic’s nominal GDP exceeds a defined threshold and the Republic has...
Interest Rate Swaps Compression: A Progress Report →
Compression (which is sometimes called trade tear-ups) enables swap dealers with substantial two-way (pay and receive) swap activity to terminate substantial amounts of swap contracts before they expire by their terms. The benefits of compression include reductions in counterparty credit exposure, operational risk and cost as well as lower legal and administrative expenses in the event of a...
Is Collateral Becoming Scarce?
Source: Is Collateral Becoming Scarce?
Note: Dubious research: the figure noted in this graph for ECB eligible collateral is off by €3 trillions
Definition: Restricted Default
‘RD’ ratings indicate an issuer that has experienced an uncured payment default on a bond, loan or other material financial obligation but which has not entered into bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedure, and which has not otherwise ceased operating. This would include:
a. the selective payment default on a specific class or currency...
ESBPF: Euro Sovereign Protection Certificate... →
Presentation
How Believing a System Can Change Helps You Learn... →
In general, people try to avoid hearing bad things about themselves. When those bad things are about characteristics that can’t be changed, people really try to avoid hearing them. In light of this behavior, Ohio State psychologists India Johnson and Kentaro Fujita posed an interesting question: If “changeability” influences whether we choose to see negative information about ourselves, might it...
Greece: IMF projections (may 2010)
Cuts drive Greek unemployment to record high
Argentine Peso
Icelandic Krona
Myths about the Lender of Last Resort →
This topic has been prone to the accretion of myths that sometimes obscure the key issues. As a start, Bagehot is often treated as the first to write on the subject, ignoring Thornton’s contribution. Next, Bagehot’s proposal that such lending be at ‘high’ rates is incorrectly translated into ‘penalty’ rates. This paper, however, concentrates on and criticizes four further myths: that...
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Eurosystem: LTROs, MROs, Lending to Credit...
Identifying States of a Financial Market
The understanding of complex systems has become a central issue because complex systems exist in a wide range of scientific disciplines. Time series are typical experimental results we have about complex systems. In the analysis of such time series, stationary situations have been extensively studied and correlations have been found to be a very powerful tool. Yet most natural processes are...
Stochastic Herding in Financial Markets Evidence... →
We estimate a structural model of herding behavior in which feedback arises due to mutual concerns of traders over the unobservable “true” level of market liquidity. In a herding regime, random shocks are exacerbated by endogenous feedback, producing a dampened power-law in the uctuation of largest sales. The key to the uctuation is that each trader responds not only to private...
Shame for money: Shame enhances the incentive... →
Shame leads to devaluation of the social self, and thus to a desire to improve self-esteem. Money, which is related to the notion of one’s ability, may help people demonstrate competence and gain self-esteem and respect from others. Based on the perspectives of feelings-as-information and threatened ego, we tested the hypothesis that a sense of shame heightens the desire for money, prompting...
The Pros and Cons of Advanced Beta ETFs →
The Dodd-Frank Act’s Potential Effects on the...
Credit rating agencies have been widely criticized in recent years for the poor performance of their ratings on mortgage-backed securities (MBS) and other structured-finance bonds. In response to the concerns of investors and other market participants, the 2010 Dodd-Frank Act incorporates a range of reforms likely to significantly reshape the rating industry. In this post, we discuss these reforms...
Task Force on Tri‐Party Repo Infrastructure: Final... →
Earlier today, the Tri-Party Repo Infrastructure Reform Task Force issued a report describing the status of industry efforts to reform the tri-party repo market. While the Federal Reserve commends the Task Force for its efforts to achieve systemic risk reduction in this market, much work remains to be done.
The tri-party repo market is an important part of the U.S. financial system. However, as...
Financial integration, specialization and systemic... →
This paper studies the implications of cross-border financial integration for financial stability when banks’ loan portfolios adjust endogenously. Banks can be subject to sectoral and aggregate domestic shocks. After integration they can share these risks in a complete interbank market. When banks have a comparative advantage in providing credit to certain industries, financial integration...
THAT Greek bond
Hellenic republic, 4.3% maturing March 20, 2012
Leverage and Asset Prices: An Experiment →
This is the first paper to test the asset pricing implication of leverage in a laboratory. We show that as theory predicts, leverage increases asset prices: When an asset can be used as collateral (that is, when the asset can be bought on margin), its price goes up. This increase is significant, and quantitatively close to what theory predicts. However, important deviations from the theory arise...
ECB Collateral
Total nominal amount of eligible assets in excess of €13.00 trillion
How casinos distract →
A Secretive Hedge Fund Legend Prepares to Surface →
Credit Risk Transfer Governance: The Good, the... →
Goldman Sachs and AIG on the eve of the 2008 financial crisis were bound together through a web of credit risk transfer (CRT) contracts in the form of credit default swaps (CDSs) and synthetic collateralized debt obligations (CDOs). Synthetic CDOs enabled hedge funds to profit from the ultimate bursting of the housing bubble due to the funds’ savvy in understanding CRT better than their...
Interesting thing. Greece Net International Investment Position is slightly better now than pre-crisis (-€200bln vs -€214 bln q4-2007)
Banning Synthetic CDOs Could Increase Risk and... →
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TARGET2 balance of the Bundesbank – Increased... →
Even though the debate about TARGET2 has already started about a year ago, the risks for Germany remain vague. In this report, we come to the following conclusions:
- The root of diverging TARGET balances across the Eurozone has been the financial (debt) crisis with its loss of interbank trust and deposit flight.
- Thus, the interpretation that Germany finances peripheral current account...
Greek Loan Facility: Overview of disbursements (so...
Source: EU
Predatory trading and risk minimisation: how to... →
We present a model of predatory traders interacting with each other in the presence of a central reserve (which dissipates their wealth through say, taxation), as well as inflation. This model is examined on a network for the purposes of correlating complexity of interactions with systemic risk. We suggest the use of selective networking to enhance the survival rates of arbitrarily chosen traders....
Engineering an Orderly Greek Debt Restructuring →
For some months now, discussions over how Greece will restructure its debt have been constrained by the requirement that the deal be “voluntary” – implying that Greece would continue debt service to any creditors that choose retain their old bonds rather than tender them in an exchange offer. In light of Greece’s deep solvency problems and lack of agreement with its creditors so far, the notion of...
Safe Assets: US sovereign debt is now a higher...
Office of Debt Management: Fiscal Year 2012 Q1 Report
EBA may ease rules if bond yields stay low →
European banking regulators may ease demands on capital buffers for banks should a recent drop in sovereign debt yields prove lasting.
Service Sweethearting: Its Antecedents and... →
This research is the first to examine service sweethearting, an illicit behavior that costs firms billions of dollars annually in lost revenues. Sweethearting occurs when frontline workers give unauthorized free or discounted goods and services to customer conspirators. We gather dyadic data from 171 service employees and 610 of their customers. Results from the employee data reveal that a variety...
SMP and the "ECB Credit Enhancement Facility...
“A 35-billion euro so-called “ECB Credit Enhancement Facility Agreement” will “enable Greece to finance a repurchase offer, under which the ECB, acting as Greece’s representative, would offer to repurchase from national central banks for the euro zone system some Greek government bonds, held by the national central banks as collateral for monetary transactions or open...
QUESTION TIME: You've got $50, and it has to be...
Randomizing Regulation →
If legislators disagree about the efficacy of a proposed policy, why not resolve the disagreement with a bet?
The Upside and Down of ETFs that Index Volatility →
The soaring volatility of the equity market has created demand for a new breed of exchange-traded funds and notes. Those notes have lowered transaction costs but may be building a premium for underlying assets, according to Henry Chien, an analyst with financial researcher The TABB Group.
Hunter-gatherers are secretly selfish →
Building a resilient financial system →
The uncertain global environment has prompted calls to reconsider or weaken financial reform. I would argue that, on the contrary, the current uncertainty makes it all the more important for us to follow through on what we have set out to do. A number of broad principles guide this work. First, financial stability is about resilience and should be prepared in advance. Second, preserving financial...
Repo market reform delayed despite Fed push →