April 06, 2015

Bank regulations, which are just a more subtle form of capital controls, are neither on CFA exams.

Sir, John Dizard writes Investment managers will “wind up shocked, sputtering something about what happened to them could not have been expected because it was a seven, eight or nine sigma event… [since] Capital controls are not on the CFA exam, or accounted for by standard, or even the most sophisticated, probabilistic risk management models.” “A [capital control] plan till you get punched in the mouth” April 6.

Well neither are bank regulations, just another more subtle form of capital controls, part of a CFA exam, which is why subprime mortgage CDS, Cypriot bank deposits, investment-grade EM corporate debt, real estate in Spain and other similar turn out to be shockers.

Had it been on CFA’s curriculum, then anyone could have understood that, allowing banks to leverage up especially much with what was perceived as “safe”, would have to end in tears.

PS. In October 2004, in a letter published by FT I wrote and warned about how “our bank supervisors in Basel are unwittingly controlling the capital flows in the world.”