tag:blogger.com,1999:blog-30643134.post5923136911269502927..comments2023-12-26T01:10:26.319-05:00Comments on Accrued Interest: TARP II: Find a way into the detention block!Accrued Interesthttp://www.blogger.com/profile/05096191765979971184noreply@blogger.comBlogger10125tag:blogger.com,1999:blog-30643134.post-72814491265277951642009-02-10T19:39:00.000-05:002009-02-10T19:39:00.000-05:00A big problem right now is that banks are hoarding...<I>A big problem right now is that banks are hoarding cash for fear that they could experience another run on deposits.</I><BR/><BR/>A bank that is well capitalized but is fearing a run pays high interest rates to attract and keep depositors. This was what we were seeing early in the banking crisis when you could readily get 5% CDs even with the Fed slashing rates.<BR/><BR/>A bank that isn't well capitalized but isn't fearing a run (because of government backstops) pays very low deposit rates. Any excess deposits dumped on the system by the Federal Reserve aren't used to make new loans but instead pile up at the Fed.<BR/><BR/>I think we've moved beyond the fear and have moved towards the zombie bank scenario. Banks are unable or unwilling to make loans because they can't value their balance sheets.Michael Hhttps://www.blogger.com/profile/16749494418858419277noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-24515030877096746612009-02-10T19:34:00.000-05:002009-02-10T19:34:00.000-05:00This comment has been removed by the author.Michael Hhttps://www.blogger.com/profile/16749494418858419277noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-27507085425025770952009-02-10T08:57:00.000-05:002009-02-10T08:57:00.000-05:00Covered bonds do subordinate other debt holders in...Covered bonds do subordinate other debt holders in the same way that any secured debt does. I don't know about the limit, but I'd imagine since there isn't much of a regulator framework for covered bonds now, that any existing limit is subject to change.<BR/><BR/>Zvi is right. There isn't a static pool pledged in a covered bond situation. Otherwise the covered bond would have to amortize along with the pledged assets. A covered bond has very little in common with a MBS. Much more in common with secured debt.<BR/><BR/>Wrii: WIth current FDIC issuance it makes some difference who the bank is. Someone like Regions trades weaker than WFC.Accrued Interesthttps://www.blogger.com/profile/05096191765979971184noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-43282497395309657872009-02-09T20:22:00.000-05:002009-02-09T20:22:00.000-05:00David Merkel at the Aleph Blog has written several...David Merkel at the Aleph Blog has written several times about covered bonds. I couldn't find the post to link to, but I believe he argued that the existence of covered bonds subordinates most of the other creditors, thereby raising the cost of financing. <BR/><BR/>Also, isn't there a limit to the amount of covered bonds a bank can hold? I'm thinking 5% of assets, but am not certain.pwm76https://www.blogger.com/profile/06360404038525306119noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-2064090426723692982009-02-09T20:12:00.000-05:002009-02-09T20:12:00.000-05:00Will the FDIC insurance likely make the bond purch...Will the FDIC insurance likely make the bond purchasers not care what bank issued it? I would think that dealers would want some central place they can go to buy and sell them so that they don't have to call every bank in the country to round up all the bonds they want. Otherwise GSE debt will still be more attractive.Keithhttps://www.blogger.com/profile/15217923679078743519noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-57111368540437624172009-02-09T19:18:00.000-05:002009-02-09T19:18:00.000-05:00Pre-crisis the FDIC only insured deposits (just as...Pre-crisis the FDIC only insured <B>deposits</B> (just ask WaMu bond holders.) It is only since Hank Paulson trashed the credit markets with his Hamlet impersonation that the FDIC has guaranteed selected bank debt (though the rules seem to become more selective all the time.) Perhaps by the end of the year, they will also guarantee bank equity (once Congress expands their borrowing authority from the Treasury to $100 billion.)Advant Guardhttps://www.blogger.com/profile/13724697741711826082noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-49893184933545055812009-02-09T18:24:00.000-05:002009-02-09T18:24:00.000-05:00Usually the way these things work is to have a "co...Usually the way these things work is to have a "cover pool" that serves as collateral for the entire covered bond issue program of the institution. Each issue, at least in Europe, doesn't have its own cover pool. If pool loans do become non-performing the bank must substitute performing loans. If the bank itself fails (imagine that) the covered bonds have first claim on the pool. One issue here is that holders of the longer issues in the pool could become structurally subordinated if there is a bankruptcy and the collateral cannot cover all maturities.Unknownhttps://www.blogger.com/profile/11345884905263645362noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-16993470991751972292009-02-09T16:16:00.000-05:002009-02-09T16:16:00.000-05:00GUY:A big problem right now is that banks are hoar...GUY:<BR/><BR/>A big problem right now is that banks are hoarding cash for fear that they could experience another run on deposits. You don't want to lend money out if you don't know where the funding is coming from.<BR/><BR/>A vibrant covered bond program would solve that problem. <BR/><BR/>Technically speaking, there is no "transfer" of either credit or interest rate risk. Think of it as regular bank debt except that a certain pool of assets has been pledged <I>in addition</I> to the bank's own credit worthiness.Accrued Interesthttps://www.blogger.com/profile/05096191765979971184noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-38804524163563244672009-02-09T14:47:00.000-05:002009-02-09T14:47:00.000-05:00Depending on how the bank was funding the loans wh...Depending on how the bank was funding the loans while it held them on balance sheet, there probably will be a change in interest rate risk. But under this plan, the main benefit is that it will qualify for insurance which will make the funding much cheaper.PNL4LYFEhttps://www.blogger.com/profile/10009165302340487456noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-74910578417791514402009-02-09T14:22:00.000-05:002009-02-09T14:22:00.000-05:00Is my understanding correct that the benefit of a ...Is my understanding correct that the benefit of a covered bond to the issuer is <B>increased liquidity</B> only? <BR/><BR/>There is <B>no</B> transfer of credit risk, or interest rate risk to the investor?Guyhttps://www.blogger.com/profile/04094428449324577833noreply@blogger.com