What should be the fundamental principles of banking and financial regulation?
1. KISS, keep it simple stupid (or the more politically correct, keep it small and simple)
2. TELL, go for transparency, simplify the accounting, put everything on the Balance Sheet, gross assets and liabilities, but and mostly the gross contingent liabilities.
The Aleph Blog has a number of very interesting suggestions, including:
… accounting has to be more conservative…
… More transparency is needed everywhere...
PPP Lusofonia comments :
The first rule of Liquidation Analysis is to put all actual and contingent liabilities on the balance sheet and to shrink the actual and contingent assets. In other words, no netting, presume that all paying counterparties will fail, not the receiving counterparties will insist on getting their money, NOW! , by immediately invoking cross-default clauses.
Banks, aother finance companies, and companies receiving Governtment taxpayer support should all be required to publish such worst case Liquidation Analysis, monthly or at least quarterly.
This way, we won´t have to wait for the tide to go out to see “who’s swimming without bathing trunks”… as Warren Buffet says.
SEE Kiss & Tell in banking, Peter Koenig, 1988 Euromoney version ,
and the consequences of increased banking competition.
PPP Lusofonia é um blog de economia e finanças, focado nos serviços públicos e no investimento para o desenvolvimento, e nas PPP. O blog dedica-se a (a) conceitos de economia, finanças e banca (b) às necessidades dos PALOPs e (c)oportunidades de consultoria nos PALOPs, com artigos em português ou inglês. PLEASE USE THE TRANSLATE BUTTON. PPPs, development financing in Lusophone Countries Autora: Mariana ABRANTES de Sousa
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terça-feira, março 16, 2010
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Central clearing houses are no panacea for the CDS credit swap problem, but it will help cut the market down to a proper size, and promote much needed credit re-intermediation.
ResponderEliminarA bank creditor who needs to lay off credit risk on basic credit products such as mortgages, consumer, small business and corporate loans hardly deserves to be called a bank.
Credit swaps and credit insurance should have a much smaller place in the financial markets, just for the benefit those creditors whose core business is commercial, not financial.
Financial products have to be very homogeneous to be traded on a central exchange, to estabish the price, and centrally cleared, to limit counterparty risk.
And the gross nominal amounts should all be reflected on the balance sheet (on a liquidation basis, assume that incoming payments will be zero)
As Christine Lagarde says, the use of off-balance sheet credit swaps has to be sharply restricted.
It makes sense for the financial system to go cellular in order to reduce the domino effect.
ResponderEliminarHedging any risk adds counterparty risk, which has been clearly underestimated and underpriced.
Financial institutions could be smaller and still be "too interconnected to fail". If they are part of the "shadow financial system", their stresses could remain hidden and come as big surprises.
This move back to self-sufficiency in risk management implies a major reversal of the secular trend of disintermediation, a blind faith that any risk could be covered and sold away into a ready and liquid market, sustained by speculators.
So, it's back to basics, the three R's:
Recapitilization (deleveraging),
Reintermediation and
Re-budgeting or Re-balancing (bringing transactions onto the balance sheet or the budget).
If you don´t have a strong and well capitilized balance sheet, (the bad apple syndrome) should you be allowed in the financial game, when you are raising risks for the whole system?
This is why securitization and credit insurance will be much reduced in the future. When abused, they add multiple layers (and lawyers) of risks, rather than reduce them.
The guiding principles of the new financial regulation could be:
KISS (keep it small and simple) & TELL (transparency, elementary on-balance sheet accounting)
One solution in to transfer the bad debts and other impaired assets to a "bad bank", like FINANGESTE in Portugal, circa 1990.
ResponderEliminarsegunda-feira, 9 de Fevereiro de 2009
ResponderEliminarNós já temos um 'bad bank'
Lembram-se da Finangeste? Criada para ficar com o crédito malparado das crises de 1973/74, 1979 e da Revolução. O nosso 'bad bank'.
Pois ainda existe:
"A Finangeste tem por objecto o exercício de actividades de natureza parabancária respeitantes à aquisição e recuperação de créditos, incluindo a gestão de participações sociais e de patrimónios cuja titularidade lhe advenha por virtude dos mecanismos legais e convencionais da cobrança de créditos e a promoção do investimento em projectos e empresas com vista à valorização e ulterior alienação daqueles activos."
Em 2007 teve lucros de 19 milhões dee euros explicados por "outros resultados de exploração"- Não se consegue saber o que é. E apesar dos custos de pessoal terem sido da ordem de 1,5 milhões de euros.
Aqui o relatório e contas anual de 2007 - ou seja, duas folhas, uma com o balanço, outra com a demonstração de resultados. E o semestral de 2008 aqui.
Pelo que se pode ver nas contas e na lista de venda de imóveis já vai fazendo algum trabalho de 'bad bank'