The finance lawyer who blogs at Economics of Contempt has a very nice summary of what is required for JP Morgan to claim that the trades at the CIO unit are allowed under the Volcker Rule because they were “portfolio hedging”. It is a more comprehensive and textual version of our requirement that JP Morgan [...]
JP Morgan’s $2 billion loss on credit derivatives traded by its Chief Investment Office (CIO) has moved the debate over implementation of the Volcker Rule to the front page. Many claim that these trades are a clear example of the type of speculative, proprietary trading banned by the Volcker Rule. JP Morgan CEO Jamie Dimon [...]
You like potato and I like potahto, You like tomato and I like tomahto, Potato, potahto, tomato, tomahto! Let’s call the whole thing off! from Let’s Call the Whole Thing Off by George & Ira Gershwin This past Tuesday was the closing date for Comment Letters to the CFTC on its proposed Volcker Rule, [...]
One often hears that competition promotes the efficient and weeds out the inefficient. Yes, but only insofar as there is a level playing field. Give special privileges to certain players, and the best might end up dominated by the inefficient. Analysts who overlook the power of privileges may mistake dominance for efficiency, getting backwards the [...]
January 16, 2012 – 8:20 am
Vikram Pandit, the CEO of Citigroup, used an opinion piece in last week’s Financial Times to make an interesting proposal on risk disclosures: banks and other financial institutions should be required to report how their internal modeling assesses the risk in a “benchmark” portfolio. Regulators would define the contents of this hypothetical portfolio, and banks [...]
December 29, 2011 – 9:10 am
The Financial Times’ Tracy Alloway has a nice piece that crystallizes concerns circulating among many observers regarding reforms to the banking system. New rules designed to increase the safety of the banking system are forcing banks to get smaller in a number of ways. But are these reforms just pushing the same risks off into [...]
October 26, 2011 – 6:12 pm
The Volcker Rule contained in the Dodd-Frank financial reform act bans banks from proprietary trading. In order to implement the Rule, it is necessary to distinguish proprietary trading activities, which are proscribed, from market-making activities and other traditional banking functions, which are allowed. Many traders at banks claim that this distinction is impossible to make [...]
October 6, 2011 – 5:55 pm
The US Chamber of Commerce is hosting a “fly-in” of corporate representatives tomorrow to lobby Congress and regulators on derivatives reform. They are advocating for a House bill (H.R. 1610) that would block financial regulators policing the risk on bank balance sheets. The Chamber says it wants to allow end-users to buy swaps and other [...]
September 23, 2011 – 2:11 am
It is becoming clear that the UBS scandal that rocked financial markets last week is not just about a single trader suddenly gone awry. UBS’s controls – both in risk management and auditing – failed miserably. Top bankers in the investment banking arm of UBS didn’t have a clue about what was going on in [...]
September 21, 2011 – 5:02 am
Responding to the new regulatory reforms such as the Dodd-Frank Act in the US, banks are now marketing “collateral transformation” services. A good source for various materials on this issue is Tracey Alloway’s coverage in FT Alphaville. What are these services? How are they connected to the reforms? Should we be worried? Collateral transformation is [...]
