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The study found that regulated banks tend to unload risky assets prior to regulatory review and then load back up on risky assets after review. The authors con
by 1e-9 6y ago
The study found that regulated banks tend to unload risky assets prior to regulatory review and then load back up on risky assets after review. The authors conclude that regulated banks are carrying more risk than was thought (mainly in liquid securities) and that reviews should add a greater element of surprise in timing and structure to prevent this.
- noja 6y agoWhy is the regulatory review not for some named date in the past?
- LatteLazy 6y agoOr the average over 12 months?
- deleted 6y ago[deleted]
- pgwhalen 6y agoAn average of a financial portfolio over time won’t be a good measure of risk taking during that time period. Consider, for example, a portfolio of two securities A and B who have mostly offsetting risk. If you own one million units of A on Jan 1 and zero units on Dec 31, but the opposite is true for B, while the average holdings over the year appear not risky, the risk on Jan 1 or Dec 31 is extreme.
- 1e-9 6y agoGood question. Given the apparent issues with pre-defined point-in-time reviews, the authors suggest continuous or random-time reviews instead.
- jeofken 6y agoMy guess is that few if any institution can run a SQL query with AS OF to get a view of the state of the company at a certain date, but that this information instead is spread out in a hundred databases, paper files, obscure locations known by James on floor 4, etc.
- thedudeabides5 6y agoActually Excel. It's sitting in COBOL, SQl, and then mostly XL. And then yes, paper.
- deleted 6y ago[deleted]
- OJFord 6y agoYeah, but it wouldn't be if that were the requirement.
- sgt101 6y agoWhich it should be. The fact that it isn't puts all of us on the hook for the next $trn bail out, if we are lucky enough to see administrations that act fast enough to do it and have the head room to do it. If not, welcome to a real depression.... The truth is that as a society we can't afford this, and it is flat out negligent that we are being exposed to it. Of course the drivers are to cover up the realities of the exposures of certain institutions because they can't get out of their hole and don't really want to. Someone needs to get a grip on this and drive change in the real situation, the regulations and the culture much faster and harder.
- jeofken 6y agoNo law of nature says government should use tax money or print money to fund failing banks. Doing so is centrally planning banking, and almost be definition less efficient, just like central planning of any market (such as currency markets by way of central banking)
- jeofken 6y agoThis kind of thinking is the same as looking at a software product and thinking “I could hack that in a weekend”. It’s more complex than our first intuition. I’d prefer the other way - remove government intervention in banking, but also remove government protection with bail outs and central banking.
- pgayed 6y ago[ retracted ]
- AnimalMuppet 6y agoSuppose we stop assuming that. Then what? Do you have a concrete proposal or position or something to advocate? If so, what?
- pgayed 6y ago[ retracted ]
- CincinnatiMan 6y agoI'm a taxpayer and have no idea how to assess the risk held by a bank haha.
- pgayed 6y agoThen you shouldn't entrust your money to that business. The problem is the false sense of safety implied by regulatory control. Rather than inducing market incentives for transparency and increasing consumer intelligence over time, regulatory bodies want you to “just let us handle the tough stuff.”
- CryptoPunk 6y agoBut you have a way to assess the effectiveness of politicians at appointing the heads of regulatory agencies? Consumers know more about the TV they're going to buy than the bank they're going to deposit with, and that's due to the moral hazard created by taxpayer subsidized risk management by regulatory agencies and deposit insurance. The FDIC's risk socialization function increases systemic risk: https://www.nber.org/papers/w22223 https://www.nber.org/papers/w22223
- pgayed 6y agoThank you. I am getting destroyed in this thread. I thought this was hacker news. I don't understand the level of confidence being accorded here to centralizing bodies.
- esja 6y agoVery similar to Lehman's Repo 105 maneuver: https://en.wikipedia.org/wiki/Repo_105 https://en.wikipedia.org/wiki/Repo_105
- thesz 6y agoExactly what high frequency trading algorithms usually do: they mostly buy right after opening and get rid of liquid assets before closing.