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Another hat-tip to the Banking Law Prof blog for a pointer to this piece of testimony from Roger Cole of the US Federal Reserve on the sub-prime lending problems in the US.
From this, it looks like the Fed understand the problem much better than the US Senators in the banking committee – which is understandable. The problem is not serious to the banking system as a whole, but is serious for those banks that have been lending heavily in this way, as well as being serious for those losing their homes.
To me, this shows the banking system is working – one or a few banks start lending less than carefully, they lose money and close up. Where there is insurance it pays out. Lessons are learnt, models are updated and business processes re-examined. The system as a whole is not hurt, but helped by what has been learned.
The pity here is that the borrowers lose their homes – but they are homes they would not have been able to buy without the poor lending practices that were the problem in the first place.
The Senators, being politicians, have to play to the audience. After a while they will calm down and, if a serious problem is revealed, legislate then. We just have to live in hope that, unlike the Sarbanes-Oxley debacle, legislation is not passed in the heat of the moment.
While I specialise in bank regulation the more I see of it, in general, the less I believe in it. I tend to spend a fair part of my time trying to mitigate its worst effects. A good example of this is what I call reverse regulatory capture – where the stronger the regulation the more the banks (and any other regulated entity) tend to start trying to run their enterprise to please the regulator, rather than to please the stakeholders in the business and the less real thought they put into . Read the rest of this entry »
It is not that far away to the date of Basel II implementation. Most banks would be on their final hurdle, well, at least for Pillar 1.
Up until now, firms who were planned to be beyond standardized, have spent millions. With lot of projects start winding up. One question has floated to the surface, which somehow, did not have a clear answer back then.
I found this little piece on Finextra thought provoking – apparently, credit card details (with verification numbers) are available for as little as USD1 on some bulletin boards in the US and elsewhere, with full bank account details going for between USD14 and 18.
The question running through my head is – why so cheap? It has to be either a demand – i.e. they are not worth much – or a supply thing – there are so many out there.
Either way, this may actually be a good thing, in a perverse way. Read the rest of this entry »
For Basel modellers, a common problem is a relatively short period of data. In most firms, they might not even able to get up to 5 years worth of data. Hence, the PD models would normally reflecting a Point in time (PIT) estimate or a Short run cycle (SRC) estimate.
Now, its nothing wrong having a PIT estimate. It is really up to the Bank’s senior management to decide if they want: –> You can read more here
These are the initial steps that you need to undertake in implementing AML/CTF legislation. These steps are common to a lot of compliance projects, so they can be used a bit more generically. The important thing here is to get this under way soon so that you can demonstrate to AUSTRAC that you are trying to comply. There is a 15 month window in the legislation to achieve full compliance – but this will only be allowed if you can show you are actually trying. Read the rest of this entry »
HSBC has annouced its financial results last week (5/3/2007), indicating a profit warning due to its US lending units, one third of the group’s total earnings, that risk management and other controls are not meeting the expectations of with the group’s overall direction. The “specific” unit which Stephen green, chairman of HSBC holdings, was referring to the US mortgage business, which profit has substantially dropped due to the unexpected increase in delinquency in the sub-prime mortgage area. I am not going into too much details of what has already been announced, you can read them in http://www.hsbc.com/hsbc/news_room/news/news-archive-2007?cp=/public/groupsite/news_room/2007_archive/hsbc_holdings_plc_2006_annual_results.jhtml&isPc=true
or google it.
Anyway, reason I raised this topic, along side from the above, here are couple of articles I have read today: Read the rest of this entry »
Thanks to the Banking Law Prof Blog for pointing to this press release from the FDIC about a sub-prime lender in the US getting a “cease and desist” consent order from the FDIC. In Australia these would be termed an “EU” – an enforceable undertaking.
If I can use this example to illustrate how the three Basel II pillar would actually work in practice I think it would be a useful exercise. Read the rest of this entry »
One of the things I am commonly called on to do it to look at option valuations to see whether they are appropriate and likely to be correct. These are often prepared by an accounting firm or a consultancy. This is normally for a fee of around $1,500 to $2,000 – or even more in some cases.
These are often done for audit purposes, to ensure that the options are (materially) correctly valued for presentation in the financial accounts. Some good news here if you are looking at doing this – you can do it yourself and save (almost) all of the money. Read the rest of this entry »
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