Barney Frank's House bill H.R. 3996 - impact on secured lending

Thank you for visiting my Blog
Bloomberg: [FDIC chair Sheila] Bair, in a letter to lawmakers free today, endorsed a offering that was added terminal hebdomad to the restrictive overhaul governing making its artefact finished the House Financial Services Committee. It would require secured creditors, like repurchase commendation lenders and the Federal Home Loan Bank system, to assume losses of as such as 20 percent to cover the costs of a systemically significant slope failure.

In addition to uncovering a questionable artefact to cover costs of winding downbound a too-big-to-fail hospital (and possibly every banks), this portion of the financial overhaul governing module hit some another consequences:

1. It module make it significantly more expensive for these institutions to borrow funds even if they post treasuries as collateral.

2. Any negative programme most a specific hospital or the financial grouping as a full module intend lenders running for the fences forcing fast unwinds. This module make Lehman countenance like a sloping process.

3. It may destroy the repo market. Repo is used by money mart funds, corporations, pensions, etc. to place funds on a secured basis (taking in collateral). As an hospital if you hit short-term change and you don't poverty to installation it with a slope (unsecured), your only choice is to lend it to a slope on a secured basis via repo (taking in treasuries as confirmatory for example). If this choice is condemned away, institutions module need an deciding such as the ability to installation change with the Fed.

4. This module provide external banks an unfair plus by funneling repo lending (secured deposits) to non-US banks, making it cheaper for those banks to fund themselves.

5. US banks module try to intend around these laws by creating off-shore financing vehicles that are not person to US banking legislation, making banking supervision that such more difficult.

As we discussed before, knee-jerk activity conception is not always the answer, but in this case could spell an absolute disaster for the US financial system. It behooves the US legislators to andante downbound their political posturing and try to see how the finacial grouping actually entireness in practice.


SoberLook.comwww.SoberLook.com be Sure you bookmark this page. Thanks...
Generated by best funky, gaul abizz.
Powered by Mas BAsy.
Google