PrefBlog

The Kansas City Fed has published a very interesting evaluation of the Basel Rules on liquidity buffers by Michał Kowalik titled Basel Liquidity Regulation: Was It Improved with the 2013 Revisions?:

However, important shortcomings remain. The new Basel provisions,
like the original ones, still determine liquidity buffer size and composition without taking into account the nature of an individual financial institution’s risk profile, capital, and business activity—all factors that determine the institution’s ability to withstand liquidity shocks. One reason the BCBS opted not to pursue a more flexible, individualized approach is that such an approach would be hard to apply consistently across national borders and the comparability of liquidity positions among financial institutions would not be guaranteed. The inflexible approach, however, raises concerns that some financial institutions may be required to hold buffers larger or smaller than necessary given the nature of their own operations. Moreover, an inflexible approach to determining buffer size and composition can invite “regulatory arbitrage.” Financial institutions may devise strategies that exploit loopholes in the Basel provisions, undermining the integrity of the liquidity buffers.

Shadow banking is making a comeback:

Cerberus Capital Management LP is entering the booming market for single-family homes to rent, planning to lend billions of dollars to investors too big for government programs and too small to get Wall Street funding.
…
The New York-based firm is seeking to fill a void left by regional lenders that prior to the housing crash were the primary source of loans for landlords buying properties. At least 475 banks have failed since the real-estate collapse, according to the Federal Deposit Insurance Corp., while larger banks have tightened mortgage underwriting standards and are focusing on the biggest investors.

“There’s a real vacuum and Cerberus sees that and they are filling it,” said Jack BeVier, partner at Baltimore-based Dominion Group, which buys and renovates homes. “That niche used to be filled by commercial banks, the local savings and loans or the small regional banks, which would do blanket mortgages across many rental properties, but those players are largely out of the market right now.”

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums off 1bp, FixedResets gaining 3bp and DeemedRetractibles down 5bp. Volatility was average. Volume was average.

This entry was posted on Friday, May 10th, 2013 at 12:22 am and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.