{"id":19832,"date":"2012-09-26T23:06:56","date_gmt":"2012-09-27T03:06:56","guid":{"rendered":"http:\/\/www.prefblog.com\/?p=19832"},"modified":"2012-09-26T23:06:56","modified_gmt":"2012-09-27T03:06:56","slug":"september-26-2012","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=19832","title":{"rendered":"September 26, 2012"},"content":{"rendered":"

I’m all in favour of a cap on leverage at banks … but a leverage cap of 12.5:1<\/a> seems quite extreme:<\/p>\n

Banks should be required to reduce by half the amount they can borrow against equity to make the financial system safer, according to former Federal Deposit Insurance Corp. Chairman Sheila Bair.<\/p>\n

Bair called for a \u201chard-and-fast\u201d leverage ratio of 8 percent in \u201cBulls by the Horns,\u201d her memoir of the financial crisis published this month. That\u2019s double the 4 percent ratio U.S. banks must adhere to currently and more than twice the 3 percent called for by new global rules on bank capital.<\/p>\n

Lenders could borrow about 13 times their equity, based on Bair\u2019s suggestion, compared with 25 times under existing U.S. rules. Bair, 58, who stepped down from the FDIC last year, was a proponent of the Basel Committee on Banking Supervision introducing a simple leverage ratio, which ignores the riskiness of different loans in setting minimum capital requirements. While the Basel committee agreed on including such a ratio, European countries have balked at implementation.
…<\/b>
The Basel committee narrowed the definition of what counts as capital. It also devised a method of tallying assets for calculating leverage ratio that puts aside the different accounting standards used in the U.S. and Europe. The new method would increase the balance sheets of U.S. banks because of differences in how derivatives are treated.<\/p>\n

Using Basel\u2019s narrower capital definition, the two largest U.S. banks would have to raise about $100 billion of capital to comply with Bair\u2019s leverage recommendation. JPMorgan Chase & Co. (JPM) would have a leverage ratio of 5.8 percent under the new capital definition, and No. 2 Bank of America Corp.\u2019s would be 5.9 percent. Neither bank has yet reported what their ratios would be under the new Basel method of calculating assets.\n<\/p><\/blockquote>\n

At some point, we’re going to be so safe that nothing happens. An unchanging world of tick-boxes … the regulators’ dream.<\/p>\n

The CDHowe Institute has issued a plea for more RRBs – More RRBs, Please! Why Ottawa Should Issue More Inflation-Indexed Bonds<\/a>:<\/p>\n

This Commentary explores the potential impact of a larger RRB issue over the next five years than Ottawa currently plans. Rather than the $2.4 billion annually now planned, we suggest $7.2 billion annually. We further recommend that two-thirds of the larger RRB issue have 10-year maturities rather than the 30-year maturities exclusively issued to date. A plausible estimate of the net interest savings on federal debt comes to $200 million in 2016\/17 and $500 million over the period until then. We canvass a number of ways the federal government can ensure that this higher RRB issue does not hurt the depth and liquidity of the market for its nominal debt.<\/p><\/blockquote>\n

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums up 18bp, FixedResets down 5bp and DeemedRetractibles gaining 1bp. Volatility was average. Volume was low.<\/p>\n

PerpetualDiscounts (all three of them!) now yield 4.91%, equivalent to 6.38% interest. Long corporates<\/a> now yield about 4.25% so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 215bp, a sharp increase from the 200bp reported September 19<\/a>.<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n
HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices<\/strong>
Values are provisional and are finalized monthly<\/td>\n<\/tr>\n
Index<\/td>\nMean
Current
Yield
(at bid)<\/td>\n		Median
YTW<\/td>\n		Median
Average
Trading
Value<\/td>\n		Median
Mod Dur
(YTW)<\/td>\n		Issues<\/td>\nDay’s Perf.<\/td>\nIndex Value<\/td>\n<\/tr>\n
Ratchet<\/td>\n0.00 %<\/td>\n0.00 %<\/td>\n0<\/td>\n0.00<\/td>\n0<\/td>\n0.3794 %<\/td>\n2,463.0<\/td>\n<\/tr>\n
FixedFloater<\/td>\n4.46 %<\/td>\n3.83 %<\/td>\n36,644<\/td>\n17.61<\/td>\n1<\/td>\n-0.0469 %<\/td>\n3,571.1<\/td>\n<\/tr>\n
Floater<\/td>\n2.98 %<\/td>\n2.99 %<\/td>\n55,432<\/td>\n19.73<\/td>\n3<\/td>\n0.3794 %<\/td>\n2,659.4<\/td>\n<\/tr>\n
OpRet<\/td>\n4.67 %<\/td>\n3.37 %<\/td>\n53,378<\/td>\n1.45<\/td>\n4<\/td>\n-0.2304 %<\/td>\n2,545.7<\/td>\n<\/tr>\n
SplitShare<\/td>\n5.44 %<\/td>\n4.89 %<\/td>\n71,815<\/td>\n4.56<\/td>\n3<\/td>\n0.1193 %<\/td>\n2,818.6<\/td>\n<\/tr>\n
Interest-Bearing<\/td>\n0.00 %<\/td>\n0.00 %<\/td>\n0<\/td>\n0.00<\/td>\n0<\/td>\n-0.2304 %<\/td>\n2,327.8<\/td>\n<\/tr>\n
Perpetual-Premium<\/td>\n5.28 %<\/td>\n2.44 %<\/td>\n94,811<\/td>\n1.03<\/td>\n28<\/td>\n0.1760 %<\/td>\n2,294.8<\/td>\n<\/tr>\n
Perpetual-Discount<\/td>\n4.91 %<\/td>\n4.91 %<\/td>\n104,855<\/td>\n15.66<\/td>\n3<\/td>\n0.2762 %<\/td>\n2,570.0<\/td>\n<\/tr>\n
FixedReset<\/td>\n4.96 %<\/td>\n3.06 %<\/td>\n177,765<\/td>\n4.25<\/td>\n72<\/td>\n-0.0541 %<\/td>\n2,430.5<\/td>\n<\/tr>\n
Deemed-Retractible<\/td>\n4.94 %<\/td>\n3.65 %<\/td>\n121,261<\/td>\n1.90<\/td>\n46<\/td>\n0.0088 %<\/td>\n2,372.4<\/td>\n<\/tr>\n<\/table>\n\n\n\n\n\n\n\n
Performance Highlights<\/strong><\/td>\n<\/tr>\n
Issue<\/td>\nIndex<\/td>\nChange<\/td>\nNotes<\/td>\n<\/tr>\n
GWO.PR.N<\/td>\nFixedReset<\/td>\n-2.49 %<\/td>\nYTW SCENARIO
\nMaturity Type : Hard Maturity
\nMaturity Date\t: 2022-01-31
\nMaturity Price : 25.00
\nEvaluated at bid price : 23.50
\nBid-YTW : 3.81 %<\/td>\n<\/tr>\n
IGM.PR.B<\/td>\nPerpetual-Premium<\/td>\n1.00 %<\/td>\nYTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2014-12-31
\nMaturity Price : 26.00
\nEvaluated at bid price : 26.85
\nBid-YTW : 3.92 %<\/td>\n<\/tr>\n
VNR.PR.A<\/td>\nFixedReset<\/td>\n1.11 %<\/td>\nYTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2017-10-15
\nMaturity Price : 25.00
\nEvaluated at bid price : 26.35
\nBid-YTW : 3.49 %<\/td>\n<\/tr>\n
TCA.PR.Y<\/td>\nPerpetual-Premium<\/td>\n1.35 %<\/td>\nYTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2014-03-05
\nMaturity Price : 50.00
\nEvaluated at bid price : 51.95
\nBid-YTW : 2.44 %<\/td>\n<\/tr>\n<\/table>\n\n\n\n\n\n\n\n\n\n\n
Volume Highlights<\/strong><\/td>\n<\/tr>\n
Issue<\/td>\nIndex<\/td>\nShares
Traded<\/td>\n		Notes<\/td>\n<\/tr>\n
PWF.PR.P<\/td>\nFixedReset<\/td>\n91,570<\/td>\nScotia crossed blocks of 20,000 and 50,000 at 25.20, and bought 10,000 from TD at the same price.
\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2042-09-26
\nMaturity Price : 23.39
\nEvaluated at bid price : 25.18
\nBid-YTW : 3.02 %<\/td>\n<\/tr>\n
ENB.PR.P<\/td>\nFixedReset<\/td>\n56,460<\/td>\nRecent new issue<\/a>.
\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2042-09-26
\nMaturity Price : 23.12
\nEvaluated at bid price : 25.08
\nBid-YTW : 3.75 %<\/td>\n<\/tr>\n
BNS.PR.X<\/td>\nFixedReset<\/td>\n55,650<\/td>\nTD crossed 50,000 at 26.85.
\nYTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2014-04-25
\nMaturity Price : 25.00
\nEvaluated at bid price : 26.82
\nBid-YTW : 2.16 %<\/td>\n<\/tr>\n
CM.PR.K<\/td>\nFixedReset<\/td>\n49,205<\/td>\nScotia crossed 40,000 at 26.15.
\nYTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2014-07-31
\nMaturity Price : 25.00
\nEvaluated at bid price : 26.10
\nBid-YTW : 2.64 %<\/td>\n<\/tr>\n
CM.PR.G<\/td>\nPerpetual-Premium<\/td>\n44,687<\/td>\nTD crossed 29,800 at 25.60.
\nYTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2012-10-26
\nMaturity Price : 25.50
\nEvaluated at bid price : 25.60
\nBid-YTW : -5.40 %<\/td>\n<\/tr>\n
RY.PR.X<\/td>\nFixedReset<\/td>\n29,950<\/td>\nTD crossed 25,000 at 26.99.
\nYTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2014-08-24
\nMaturity Price : 25.00
\nEvaluated at bid price : 26.87
\nBid-YTW : 2.54 %<\/td>\n<\/tr>\n
There were 23 other index-included issues trading in excess of 10,000 shares.<\/td>\n<\/tr>\n<\/table>\n\n\n\n\n\n\n\n\n\n
Wide Spread Highlights<\/strong><\/td>\n<\/tr>\n
Issue<\/td>\nIndex<\/td>\nQuote Data and Yield Notes<\/td>\n<\/tr>\n
GWO.PR.N<\/td>\nFixedReset<\/td>\nQuote: 23.50 – 24.20
\nSpot Rate : 0.7000
\nAverage : 0.4107<\/p>\n

YTW SCENARIO
\nMaturity Type : Hard Maturity
\nMaturity Date\t: 2022-01-31
\nMaturity Price : 25.00
\nEvaluated at bid price : 23.50
\nBid-YTW : 3.81 %<\/td>\n<\/tr>\n

GWO.PR.I<\/td>\nDeemed-Retractible<\/td>\nQuote: 23.95 – 24.46
\nSpot Rate : 0.5100
\nAverage : 0.3335<\/p>\n

YTW SCENARIO
\nMaturity Type : Hard Maturity
\nMaturity Date\t: 2022-01-31
\nMaturity Price : 25.00
\nEvaluated at bid price : 23.95
\nBid-YTW : 5.09 %<\/td>\n<\/tr>\n

PWF.PR.L<\/td>\nPerpetual-Premium<\/td>\nQuote: 25.48 – 25.85
\nSpot Rate : 0.3700
\nAverage : 0.2321<\/p>\n

YTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2014-10-31
\nMaturity Price : 25.25
\nEvaluated at bid price : 25.48
\nBid-YTW : 5.01 %<\/td>\n<\/tr>\n

MFC.PR.I<\/td>\nFixedReset<\/td>\nQuote: 25.42 – 25.74
\nSpot Rate : 0.3200
\nAverage : 0.1998<\/p>\n

YTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2017-09-19
\nMaturity Price : 25.00
\nEvaluated at bid price : 25.42
\nBid-YTW : 4.07 %<\/td>\n<\/tr>\n

CM.PR.L<\/td>\nFixedReset<\/td>\nQuote: 26.35 – 26.66
\nSpot Rate : 0.3100
\nAverage : 0.1941<\/p>\n

YTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2014-04-30
\nMaturity Price : 25.00
\nEvaluated at bid price : 26.35
\nBid-YTW : 2.64 %<\/td>\n<\/tr>\n

RY.PR.C<\/td>\nDeemed-Retractible<\/td>\nQuote: 25.80 – 26.07
\nSpot Rate : 0.2700
\nAverage : 0.1715<\/p>\n

YTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2015-11-24
\nMaturity Price : 25.00
\nEvaluated at bid price : 25.80
\nBid-YTW : 3.68 %<\/td>\n<\/tr>\n<\/table>\n","protected":false},"excerpt":{"rendered":"

I’m all in favour of a cap on leverage at banks … but a leverage cap of 12.5:1 seems quite extreme: Banks should be required to reduce by half the amount they can borrow against …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[15],"tags":[],"class_list":["post-19832","post","type-post","status-publish","format-standard","hentry","category-market-action"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/19832","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=19832"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/19832\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=19832"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=19832"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=19832"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}