March 01, 2008
John Duggan, the Comptroller of the Currency, just called on the Basel Committee to re-think how much it would count subprime mortgage securities towards establishing the adequacy of the capital reserves of regulated banks. Of course, this used to be the kind of thing that the Comptroller of the Currency could do on his own, without persuading foreign bank supervisors of the merits of the idea on his next trip to Switzerland. Anyway, here's what he said:
regulators need to reconsider the part of the Basel II capital rules that apply to senior tranches of re-securitized structured credit such as [collateralized debt obligations consisting of securities backed by subprime mortgages]. While the Basel II framework recognized the greater systematic risk embedded in securitization exposures when compared to corporate exposures, we need to take another look to see if the differences that were incorporated went far enough. For example, should the securitization provisions of Basel II establish a unique set of higher risk weights for [collateralized debt obligations consisting of securities backed by subprime mortgages] and other re-securitizations, reflecting the higher vulnerability to systematic risk as evidenced by recent events?
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1. Posted by Jake on March 2, 2008 @ 18:55 | Permalink
Very interesting. I'm just now resurfacing from a five week trial in which the other party raised Basel I capital requirements as a weak proxy for transaction-specific default risk. They even brought in a former Comptroller of the Currency to explain Basel I. My co-counsel worked the distinguished gentleman over pretty good on cross-exam. Way cool.
2. Posted by David Zaring on March 2, 2008 @ 22:30 | Permalink
And B one shouldn't be too hard to explain! Interesting to hear that it's coming up in litigation - I every so often look for it in opinions, and it's rare to find.
3. Posted by art byrne on March 4, 2008 @ 17:26 | Permalink
IF ALL THE LOANS ARE BAD -HAPPENED WITH S AND LS-THEY SOLD OFF ALL THE GOOD LOANS-THEN HOW DO YOU GRADE THE SIV- THINK IVAR KRUEGER.
4. Posted by art byrne on March 4, 2008 @ 17:26 | Permalink
IF ALL THE LOANS ARE BAD -HAPPENED WITH S AND LS-THEY SOLD OFF ALL THE GOOD LOANS-THEN HOW DO YOU GRADE THE SIV- THINK IVAR KRUEGER.
5. Posted by ART BYRNE on March 5, 2008 @ 19:55 | Permalink
It would bhelpful to rent the movie TINMAN thats how subprime started.Lenders who bought the paper did so with recourse. But they were aware that the tinmen and used car dealers had away of disappearing,so they would hold back say 20% in a "dealers Reserve"
6. Posted by ART BYRNE on March 5, 2008 @ 19:55 | Permalink
It would bhelpful to rent the movie TINMAN thats how subprime started.Lenders who bought the paper did so with recourse. But they were aware that the tinmen and used car dealers had away of disappearing,so they would hold back say 20% in a "dealers Reserve"
7. Posted by David Zaring on March 5, 2008 @ 20:21 | Permalink
Which would be like a super-Basel. I'll have to quote Tinmen the next time I write about the BCBS.
