Showing posts with label Aline van Duyn. Show all posts
Showing posts with label Aline van Duyn. Show all posts

July 25, 2011

The “arbiters under fire” should be the bank regulators.

Sir, unfortunately, Aline van Duyn and Richard Milne, in “Arbiters under fire”, July25, fail to clearly identify the reasons why the current bank regulations based on credit ratings are so utterly wrong and make a decoupling such an urgent matter. Those reasons are in short the following: 

1. The market already considers the credit ratings when setting the risk premiums for a borrower which means that also using the same ratings when setting the capital requirements for banks give these ratings an exaggerated weight. Any information, exaggeratedly considered, is made wrong even if originally right. 

2. Regulators do not need to be concerned with credit ratings being right they should only worry about these being wrong. In this respect designing capital requirements for banks that are based on the credit ratings being absolutely right is absolute madness. 

3. Heisenberg´s uncertainty principle coming into play… the more precise you try to measure the creditworthiness of a borrower the more you might affect that same creditworthiness. 

4. The more you try to assure yourself the credit rating agencies perform their duties right, the more you are bound to trust them and consequentially the more fragile will the resulting financial system be. 

I am and have never been a bank regulator, but March 2003, in a published letter to the Financial Times I wrote “Everyone knows that, sooner or later, the ratings issued by the credit agencies are just a new breed of systemic errors, about to be propagated at modern speeds”. Those arbiters who should really be under fire are the bank regulators.

April 29, 2011

Is the Basel Committee´s mistake a taboo in FT?

Sir, Aline van Duyn and Nicole Bullock report “Banks braced for knock-on effect of credit ratings” April 29. There, and though they refer to issues such like that the ratings of the banks could suffer because of the close relation with the risks of their respective sovereign, and of outright losses if selling sovereign debt at a loss, amazingly they do not say one single word about the increase in capital requirements for the banks those downgrading in the credit cause, retroactively.

All bad that can happen when lenders have followed high credit ratings and these are suddenly downgraded, are currently compounded by the fact that the regulators use exactly the same credit ratings when establishing the capital requirements for banks. This was the biggest mistake of the Basel Committee, and of which I have written to you countless times. Has it now even become a taboo to discuss that in FT?

July 22, 2009

Shear madness or superb lobbying?

Sir as Joanna Chung and Aline van Duyn reports in “US rating agencies escape overhaul” July 22, the financial regulators seem intent to have the financial world and the banks to keep on following the opinions of the credit rating agencies as if nothing has happened. Is this the result of shear madness or superb lobbying?

May 19, 2009

Please, may we have a small but growing capital charge on governments?

Sir if your bank lends your government 100 pounds then it is not required to have any equity but, if it lends that amount to your unrated neighbour, then it has to put up 8 pounds in equity. That might sound very reasonable to you I do not know your neighbour, but be sure that in the long term it will just mean we will all end up more and more entangled in the web of the government.
In this respect when we read Aline van Duyn and Francesco Guerrera report in “Geithner plan fuels cost fears”, May 19, that “companies face capital charges against hedges” one wonders when they will start imposing some capital charges on what seem runaway governments. A small increasing capital charge on anything to do with governments is probably an essential element to help stimulate the banks into lending more to the private sector again.

January 09, 2009

Send out the dogs!

Sir Aline van Duyn does very right reminding us that “Messy question of toxic assets still needs an urgent answer” January 9. There must be without any doubt some value in those assets and besides, in these circumstances of uncertainty, even knowing for sure they’re worthless could have some value.

I remember having heard about the possibility of the US government empowering some financial experts to go out and hunt down the value of the toxic assets and paying them a percentage of the bounty. What happened with such a splendid idea… too republican?

August 29, 2008

What derives from what?

Sir we used to believe derivatives derived from the market but each day that passes, with articles such as "Derivatives law sheds light on the financial ripple effect" Aline van Duyn, August 29, we suspect that it could equally be that it is the market that derives from derivatives.
This reminds me of what I have always felt about the issue of immigration and securing the borders, namely that whenever you build a wall you cannot be absolutely sure you end up on the right side of it.

March 08, 2008

The born again financiers

Sir Aline van Duyn in her report "Banks spend $500m on Ambac shares" March 8, quotes Michael Callen the chief executive of Ambac saying that "The market gods were totally against us"; which must be very humbling to say for a member of a profession that so recently believed themselves to be the gods of the market.

That said the operation also begs the answer for how the banks are going to account in their books for the registry of what basically amounts to an expense in order to avoid having to expense even larger losses if the credit risk insurance provided by Ambac is shown to be worth less than a prime rating.

February 02, 2008

Should we freeze the ratings too?

Sir Aline van Duyn in “Stakes in the ratings game are being rapidly raised” February 2, describes very well the consequences of our financial regulators having empowered financial Frankensteins to tell the world about where the risks were. How do we now rein them in?
Perhaps having thought about interest rate freezing it could also behove us to take a closer look at the freezing of ratings? I mean what useful purpose could it serve getting all the bad news simultaneously when we can’t really digest them rationally? Especially since they are in fact really old news since they should never have gotten their good ratings to begin.