Comments on: Imposing a haircut on secured bank creditors http://blogs.reuters.com/felix-salmon/2009/10/06/imposing-a-haircut-on-secured-bank-creditors/ 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: sechel http://blogs.reuters.com/felix-salmon/2009/10/06/imposing-a-haircut-on-secured-bank-creditors/comment-page-1/#comment-7703 Thu, 08 Oct 2009 14:03:28 +0000 http://blogs.reuters.com/felix-salmon/2009/10/06/imposing-a-haircut-on-secured-bank-creditors/#comment-7703 Great solution: Senior debt has a whole different meaning when the gov’t serves to void moral hazzard. This 80% rule could really benefit the banking system by forcing banks to borrow more prudently and not short term. Introduces a bit of market discipline to those lending the funds as well.

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By: Winston http://blogs.reuters.com/felix-salmon/2009/10/06/imposing-a-haircut-on-secured-bank-creditors/comment-page-1/#comment-7648 Wed, 07 Oct 2009 09:52:33 +0000 http://blogs.reuters.com/felix-salmon/2009/10/06/imposing-a-haircut-on-secured-bank-creditors/#comment-7648 Felix, I hope you do understand that the move to limit securitisation will eventually translate to higher interest rates to compensate for the high risk posed. This will add on to the liquidity issue that is faced by the real markets and solve nothing at all. Its not so much the securitisation that kills companies. Its exorbitant interest rates that does.

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By: Teri Buhl http://blogs.reuters.com/felix-salmon/2009/10/06/imposing-a-haircut-on-secured-bank-creditors/comment-page-1/#comment-7632 Tue, 06 Oct 2009 21:32:00 +0000 http://blogs.reuters.com/felix-salmon/2009/10/06/imposing-a-haircut-on-secured-bank-creditors/#comment-7632 I think this was Bair’s indirect way of trying to get other regulators/lawmakers to encourage Banks to reduce their reliance on short-term funding. Why because the FDIC stands behind the guys with repo claims (made by other banks acting as counterparties lending short term cash)in the case of a wind down or bankruptcy. Repo guys lucked out when the BAPCPA extended safe harbor provisions and they could amp up collateral calls without worrying that the bankruptcy court could jump in and stop them from bleeding out the cash first.
Question is how out of whack has the BAPCPA changed bankruptcy law in favor of private creditors?
Joseph Mason, senior fellow at the Wharton School, thinks the popular media’s knee-jerk reaction to Bair’s remarks in Turkey show that many market observers and policymakers are still in the dark about how important the repo issue is when we talk about ‘keeping skin in the game’. Mason wrote to clients today, “So what the FDIC is struggling against is really a violation of absolute priority, memorialized by BAPCPA, that puts traditional bank assets squarely out of the reach of the deposit insurer.”
I honestly wish She-Bear would just come out and say exactly what’s on her mind. That her peers in the regulator game have virtual hid from real policy reforms that deal with repercussions of big bank failures in any meaningful economic way.

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By: Felix Salmon http://blogs.reuters.com/felix-salmon/2009/10/06/imposing-a-haircut-on-secured-bank-creditors/comment-page-1/#comment-7630 Tue, 06 Oct 2009 21:01:09 +0000 http://blogs.reuters.com/felix-salmon/2009/10/06/imposing-a-haircut-on-secured-bank-creditors/#comment-7630 Barry, well, yes, exactly. Getting rid of the entire class of secured lending to banks is I think a very good idea.

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By: michaelc http://blogs.reuters.com/felix-salmon/2009/10/06/imposing-a-haircut-on-secured-bank-creditors/comment-page-1/#comment-7628 Tue, 06 Oct 2009 20:24:15 +0000 http://blogs.reuters.com/felix-salmon/2009/10/06/imposing-a-haircut-on-secured-bank-creditors/#comment-7628 Putting limits on sr debt sounds like a prudent move to protect depositors, especially, as q points out, derivatives counterparties get to jump to the head of the queue, although that may change based on the Lehman CDS case.

If derivatives counterparty payables are reported as Sr debt (I’m not sure where they’re reported under FASB) it shouldn’t be very hard to iron out the wrinkle you describe. That number can be volatile and can be easily monitored on a real time basis by the regulators. Sr bondholders should be provided with that information anyway since it would have a significant effect in the event of default.

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By: Barry Ritholtz http://blogs.reuters.com/felix-salmon/2009/10/06/imposing-a-haircut-on-secured-bank-creditors/comment-page-1/#comment-7618 Tue, 06 Oct 2009 18:32:05 +0000 http://blogs.reuters.com/felix-salmon/2009/10/06/imposing-a-haircut-on-secured-bank-creditors/#comment-7618 Felix, they are called SECURED CREDITORS for a reason.

Limiting them to an arbitrary number — 80%? 20%? 0!? — means they are no longer secured.

What you are advocating is eliminating an entire class of lending . . .

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By: q http://blogs.reuters.com/felix-salmon/2009/10/06/imposing-a-haircut-on-secured-bank-creditors/comment-page-1/#comment-7615 Tue, 06 Oct 2009 17:30:56 +0000 http://blogs.reuters.com/felix-salmon/2009/10/06/imposing-a-haircut-on-secured-bank-creditors/#comment-7615 if they are senior debtholders to depositors, their debt is senior to depositors. if you don’t like that concept, don’t allow bank debtholders to be senior to depositors, at least to FDIC insured depositors.

the fact that derivative counterparties have senior claims to depositors is a much greater issue.

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By: bdbd http://blogs.reuters.com/felix-salmon/2009/10/06/imposing-a-haircut-on-secured-bank-creditors/comment-page-1/#comment-7614 Tue, 06 Oct 2009 17:23:57 +0000 http://blogs.reuters.com/felix-salmon/2009/10/06/imposing-a-haircut-on-secured-bank-creditors/#comment-7614 So the haircut is a feature, not a bug?

How is this different from using subordinated debt as a regulatory tool and perhaps lever?

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