Comments on: Regulatory arbitrage datapoint of the day http://blogs.reuters.com/felix-salmon/2009/04/08/regulatory-arbitrage-datapoint-of-the-day/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: gospel online http://blogs.reuters.com/felix-salmon/2009/04/08/regulatory-arbitrage-datapoint-of-the-day/comment-page-1/#comment-52180 Sat, 20 Sep 2014 17:23:35 +0000 http://blogs.reuters.com/felix-salmon/2009/04/08/regulatory-arbitrage-datapoint-of-the-day/#comment-52180 Hello, you used to write fantastic, but the last several posts have been kinda boring… I miss your super writings. Past several posts are just a little bit out of track! come on!

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By: Per Kurowski http://blogs.reuters.com/felix-salmon/2009/04/08/regulatory-arbitrage-datapoint-of-the-day/comment-page-1/#comment-2851 Wed, 17 Jun 2009 12:36:13 +0000 http://blogs.reuters.com/felix-salmon/2009/04/08/regulatory-arbitrage-datapoint-of-the-day/#comment-2851 The minimum capital requirements for banks based on risk assessments by third parties is the greatest interference ever in the risk allocation system of the market and is much better scrapped altogether

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By: Gene http://blogs.reuters.com/felix-salmon/2009/04/08/regulatory-arbitrage-datapoint-of-the-day/comment-page-1/#comment-320 Fri, 10 Apr 2009 21:42:00 +0000 http://blogs.reuters.com/felix-salmon/2009/04/08/regulatory-arbitrage-datapoint-of-the-day/#comment-320 Reg capital arbitrage is not a new thing. Thanks for the post, but just a heads up one doesn’t have to change or securitize asset classes to achieve reg capital relief. one can simply resecuritize a single CDO tranche into 2 tranches to play the game. The rating agencies also benefit (in terms of fees). Se for example our March piece http://expectedloss.blogspot.com/2009/03  /regulatory-capital-arbitrage.html
If we wanted to stop the game, we would have to delink ratings from reg capital requirements. Tough, but possible. And it may help mitigate against systemic risk issues.

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By: Robert Waldmann http://blogs.reuters.com/felix-salmon/2009/04/08/regulatory-arbitrage-datapoint-of-the-day/comment-page-1/#comment-245 Thu, 09 Apr 2009 03:51:52 +0000 http://blogs.reuters.com/felix-salmon/2009/04/08/regulatory-arbitrage-datapoint-of-the-day/#comment-245 Awesome find.

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By: Anon http://blogs.reuters.com/felix-salmon/2009/04/08/regulatory-arbitrage-datapoint-of-the-day/comment-page-1/#comment-238 Wed, 08 Apr 2009 23:22:17 +0000 http://blogs.reuters.com/felix-salmon/2009/04/08/regulatory-arbitrage-datapoint-of-the-day/#comment-238 I agree with Boring Cdn. The most remarkable thing about the GS report is that it assumes that all banks always arbitrage regulatory capital — or in other words that no bank would ever consider holding a level of capital sufficient to protect from failure if the regulators did not require it to.

Makes me think that the only real solution is Simon Johnson’s “just break them up” method, so regulators can relax and let old-fashioned market forces do their job.

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By: Boring Cdn http://blogs.reuters.com/felix-salmon/2009/04/08/regulatory-arbitrage-datapoint-of-the-day/comment-page-1/#comment-228 Wed, 08 Apr 2009 20:41:39 +0000 http://blogs.reuters.com/felix-salmon/2009/04/08/regulatory-arbitrage-datapoint-of-the-day/#comment-228 This analysis only looks at “Pillar I” capital required under Basel II.

Under Pillar II, a bank is required to independently determine whether the Pillar I capital is sufficient. In cases where it ends up with less capital for rejigging the exposures without actually moving any risk to someone else, then the bank would need to top up the Pillar I capital.

In the example cited the amount of the top up should be sufficient to get you back to the original capital requirement.

There are problems with this approach because Pillar I capital shows in the Tier I ratio, and Pillar II capital only appears in the total capital ratio, but GS should acknowledge that regulators recognized the potential for arbitrage and tried to close it off.

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By: dWj http://blogs.reuters.com/felix-salmon/2009/04/08/regulatory-arbitrage-datapoint-of-the-day/comment-page-1/#comment-209 Wed, 08 Apr 2009 16:23:28 +0000 http://blogs.reuters.com/felix-salmon/2009/04/08/regulatory-arbitrage-datapoint-of-the-day/#comment-209 Incidentally, I understand that part of the mark-to-market problem has been that banks have bought CDS protection on loans, and have been required to mark their hedges to market while not marking their loans to market. This results in an economic hedge, but not a financial or regulatory accounting hedge. It used to be that anything declared a “hedge” for something that wasn’t marked to market didn’t have to be marked to market, but they’ve tinkered with this a couple times in the last five years. Marking both to market makes most sense to anyone who comes from a trading background, but marking neither, in many cases, works almost as well. For maximal perversion, you need to treat them differently — much the same as with pools of loans before and after securitization. “Treat similar things similarly” is a good rule for regulation, and law in general. It’s not always so clean in practice as in theory, but it’s probably easier than what’s been cobbled together at this point.

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By: dWj http://blogs.reuters.com/felix-salmon/2009/04/08/regulatory-arbitrage-datapoint-of-the-day/comment-page-1/#comment-208 Wed, 08 Apr 2009 16:13:41 +0000 http://blogs.reuters.com/felix-salmon/2009/04/08/regulatory-arbitrage-datapoint-of-the-day/#comment-208 I wouldn’t be heartbroken if securities were subjected to somewhat higher capital requirements than loans, if just because of the agency costs they create; encouraging the originator of a loan to retain most of the exposure to the consequences of bad underwriting seems to me like a worthy policy aim. Letting banks, particularly small banks, diversify their exposure to other markets makes sense to me, but its benefits have surely been over emphasized in some places, and a gentle regulatory nudge in the other direction might be salutary.

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