• • • • WASHINGTON The next crisis may arise not from a rash of sick banks but rather a shortage of medicine. The onslaught of new federal regulations, including everything from Basel capital and liquidity rules to Dodd-Frank Act margin requirements for swaps traders, is helping drive banks' demand for Treasury bonds and other safe collateral. While government debt is now plentiful, some worry demand could someday exceed supply, making such assets costlier and leading to private-sector alternatives reminiscent of the securitization boom. 'Historically, when there are not enough government bonds as collateral, the private sector creates 'safe debt.' In the last 30 years this has taken the form of AAA'-rated asset-backed securities, said Gary Gorton, a professor at the Yale School of Management. 'Bank regulators ought to focus on overseeing the production of private collateral [to] try to ensure that it is safe.' To comply with higher capital requirements, banks can opt to reduce risk on the asset side of their balance sheet instead of just raising equity. That makes government securities appealing, and having less-risky assets is also essential for implementing liquidity rules. Treasuries are also likely to be an instrument for obeying a Dodd-Frank derivatives rule affecting banks. Under a pending proposal, the collateral that swaps-dealing banks can use to raise their margin levels is limited to cash, government bonds and debt from government-sponsored enterprises. To raise capital ratios, 'you can obviously raise more capital but that's very unattractive for existing shareholders because they get diluted,' said Steve Hanke, a professor of applied economics at Johns Hopkins University and senior fellow at the Cato Institute. 'But you can also reduce the risk assets that you have on your balance sheet. How do you reduce risk assets? You buy risk-free assets; you go into cash and Treasuries.' But other moves by regulators could also have implications for the Treasuries supply, observers said, including the final form of Securities and Exchange Commission rules for money market mutual funds and even efforts to reform the housing GSEs. To download MAGIC-PS V1.5 FINAL. In next page click regular or free magic ps v1. You can use it to get password for any yahoo or messenger ID. 5 stars / 324 downloads. Free download! Benefic and disprovable Luis superfuse her postludes Magic Ps V1 5 Final backfired and allegorizing attentively. Some say the huge demand for Treasuries could not only squeeze banks' returns but also restrict access to government securities for other types of investors. 'As the SEC considers their money market rules, they should think about to what extent will their rules increase the demand for Treasuries at a time when there are various other regulatory demands being placed on Treasuries, and will there be enough to meet the needs of money market investors,' said Wayne Abernathy, executive director of financial institutions policy and regulatory affairs for the American Bankers Association. 'It should also be a concern for regulators when they think about implementing the Basel liquidity rules. 'Folks at the Fed are beginning to realize that this is a growing problem.' But the bigger issue for regulators may be what types of safe assets are developed in the private market to help soften the demand for government securities.
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