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Federal Regulators Accuse Banks Of Not Having Credible Crisis Plans, Would Need Another Bailout
Federal Regulators Accuse Banks Of Not Having Credible Crisis Plans, Would Need Another Bailout
Perhaps the biggest farce to result from the Dodd-Frank legislation designed to “rein in” banks was the ridiculous notion of “living wills” – a concept that makes zero sense in an environment where the failure of even one bank assures a systemic crisis and could – as the Lehman financial crisis showed – lead to the collapse of all other interlinked financial institutions.
Which is why we were not surprised to read this morning that federal regulators announced that five out of eight of the biggest U.S. banks do not have credible plans for winding down operations during a crisis without the help of public money.
Which is precisely the point: now that the precedent has been set and banks know they can rely on the generosity of taxpayers (with the blessing of legislators) why should they even bother planning; they know very well that if just one bank fails, all would face collapse, and the only recourse would be trillions more in taxpayer aid.
As Reuters writes, the “living wills” that the Federal Reserve and Federal Deposit Insurance Corporation jointly agreed were not credible came from Bank of America, Bank of New York Mellon, J.P. Morgan Chase, State Street, Wells Fargo. What is more impressive is that the Fed and FDIC found any living will to be credible.
Also amusing: it was only the FDIC which alone determined that the plan submitted by Goldman Sachs was not credible while the Goldman-dominated Fed gave its blessing; alternatively, the Federal Reserve Board on its own found that the plan of Morgan Stanley – Goldman’s arch rival in investment banking – not credible. Citigroup’s living will did pass, but the regulators noted it had “shortcomings.”
…click on the above link to read the rest of the article…
“There Are No More Dollars In The Central Bank”: Argentina’s New President Confronts Liquidity Crisis
“There Are No More Dollars In The Central Bank”: Argentina’s New President Confronts Liquidity Crisis
On Monday, Mauricio Macri, the son of Italian-born construction tycoon Francesco Macri, beat out Cristina Kirchner’s handpicked successor Daniel Scioli for Argentina’s presidency in what amounted to a referendum on 12 years of Peronist rule.
A legacy of defaults combined with exceptionally high inflation and slow growth finally tipped the scales on the Leftists and now, Macri will try to clean up the mess.
As Citi noted in the wake of Macri’s victory (which was accompanied by some very bad dancing), “the most urgent challenge on the economic front is FX policy.” The President-elect wants to unify the official and parallel exchange rates (~9.60 and 15.50 ARS/USD, respectively) and that will of course entail a substantial devaluation. Just how overvalued is the peso, you ask? “Grossly” so, Citi says. Here’s their take:
Regarding the real overvaluation of the ARS, we estimate that real effective exchange rate has dropped (appreciated) 44% since 2011. Thus, for Argentina to have the same REER than four years ago, the USDARS should stand at 17. A different approach would be to compare the evolution of the real exchange rate vis-à-vis the USD in Argentina and other countries in the region. While the LatAm currencies (BRL, CLP, COP, MXN, PEN and UYU) real exchange rates relative to the USD have increased on average 36% since 2011, the USDARS has dropped 19% in real terms. Thus, from this point of view, the USDARS should stand 68% higher at 16.1.
A key figure in the execution of Macri’s currency plan is former JP Morgan global head of FX research Alfonso Prat-Gay who will be Argentina’s finance minister under the new Presdent. Prat-Gay was president of the country’s central bank beginning in 2002 and, as Reuters reminds us, “won widespread acclaim for swiftly taming runaway inflation and championing central bank independence.” If that sounds to you like characteristics that might rub a Peronist the wrong way, you’d be right, and Prat-Gay was ousted by the Kirchners.
…click on the above link to read the rest of the article…
