Tucker As Well As Bagehot At Hoover
I had the pleasance in conclusion calendar week of tending the conference on Central Bank Governance And Oversight Reform at Hoover, organized past times John Taylor.
Avoiding the usual academic inquiry of what should the Fed do, in addition to the endless media inquiry will-she-or-won't she enhance rates, this conference focused on how central banks should brand decisions. Particularly inwards the context of legislation to constrain the Fed coming from Congress, alongside financial dirigisme in addition to "macro-prudential" policy an increasing temptation, I establish these moments of reflection quite useful.
Some of the issues: Should the Fed follow an "instrument rule," similar the Taylor rule? Should it receive got "goal," similar an inflation target, but in addition to so broad latitude to exercise what it takes to achieve that goal? What structures should implement such a rule? Implicit inwards a dominion that the Fed should exercise things, similar target inflation in addition to employment, is an implicit dominion that it should ignore others, similar property prices, substitution rates in addition to so on. (I think this is much also oft overlooked. As financial reform should start past times delineating what is not systemic, in addition to thus exempt from regulation, monetary policy rules should start past times maxim what the Fed should ignore.) Should that limitation live to a greater extent than explicit? What's the right governance structure? Should nosotros maintain the regional Feds? How should Fed meetings live conducted? Is "transparency" the enemy of productive debate? How much discretion tin an agency receive got piece remaining independent? And so on.
I was going to post service thoughts on he whole conference, but John Taylor only posted an fantabulous summary, so I'll only indicate you lot there.
My labor was to verbalise over Paul Tucker's (ex Deputy Governor of the Bank of England) thoughtful paper, "How Can Central Banks Deliver Credible Commitment in addition to live “Emergency Institutions" Paul's newspaper starts to think deeply close independent regulatory agencies inwards general, in addition to monetary in addition to financial policy together. My word is narrower. I'll exceed on the word (pdf here) every bit today's weblog post, every bit it powerfulness live interesting to weblog readers.
Let me start past times summarizing, in addition to cheering, Paul’s of import points.
The measure stance says that perchance monetary policy should follow a rule, but financial-crisis firefighting needs discretion; a large mop to build clean upwards large messes; flexibility to “do what it takes”; “emergency” powers to acquire by emergencies.
I think Paul is telling us, politely, that this is rubbish. Crisis-response in addition to lender-of-last-resort actions demand rules, or “regimes,” fifty-fifty to a greater extent than than monetary policy actions demand rules. At a basic grade whatever determination is a mapping from states of the reason to actions. “Discretion” only way non talking close it.
More deeply, you lot demand rules to constrain this mapping, to pre-commit yourself ex-ante against actions that you lot volition lead ex-post, in addition to regret. Monetary policy rules guard against “just this once” inflations. Lender of in conclusion resort rules guard against “just this once” bailouts in addition to loans.
But you lot demand rules fifty-fifty more, when the organisation responds to its expectations of your actions. And preventing crises is all about controlling this moral hazard.
To halt runs, our governments guarantee deposits in addition to other loans; they bail out institutions in addition to their creditors; they purchase upwards assets to enhance prices, in addition to they lend similar crazy. But knowing this, financial institutions receive got to a greater extent than adventure than they would otherwise take, in addition to investors lend without monitoring, making crises worse. Institutions that tin borrow at in conclusion resort don’t laid upwards backup lines of credit, don’t sentinel the character of their collateral, in addition to don’t purchase expensive pose options in addition to other insurance, making crises worse. Investors who know that the Fed volition halt “fire sales,” don’t maintain some cash around for “buying opportunities,” making burn sales worse. “Big banks are also complex to boot the bucket through bankruptcy,” the mantra repeats. But why exercise people lend to them, without the protections of bankruptcy? Because they know creditors, if non management in addition to equity, volition live protected.
“The reason is ending. Influenza A virus subtype H5N1 crisis is no fourth dimension to worry close moral hazard,” bankers in addition to authorities officials told us in conclusion time, in addition to volition tell us again. But the reason does non end, in addition to actions taken inwards this crisis are just the crusade of moral peril for the side past times side one.
This isn’t theory. When the Fed in addition to Treasury bailed out Bear Stearns, in addition to peculiarly its creditors, markets learned “Oh, Fed in addition to Treasury won’t permit an investment banking venture broker-dealer boot the bucket under.” Lehman turned downwards uppercase offers, in addition to Reserve Fund losses on Lehman newspaper were plenty to crusade it to neglect inwards a run. (This is an update: reckon below.)
The severe crisis in addition to recession coincident alongside Lehman’s failure, together alongside the massive in addition to improvised reply — many flavors of Tarp, auto fellowship bailouts, in addition to so on — receive got arguably created the “rule” inwards participants’ minds close what volition hap side past times side time.
Plans, self-imposed rules, promises, guidance, in addition to tradition are non enough. Given the power, every i of us volition bail out. We won’t adventure beingness the captain of the Titanic, in addition to we’ll permit the side past times side guy or gal bargain alongside moral hazard. Influenza A virus subtype H5N1 key banker facing a crisis is similar a manlike someone parent belongings an H2O ice cream cone, facing a hungry three-year old. Sure, Mom’s dominion says dinner e'er earlier dessert. We know what’s happening to that H2O ice cream cone.
The key banking venture in addition to Treasury must non be able to bail out what they should non bail out, to lend where they should non lend, to protect creditors who should lose money. That’s the only way to halt it. More importantly, it’s the only way to persuade the moral hazarders that all the fine words inwards the blast volition non melt rapidly inwards the emergency.
Two key quotes summarize the Tucker view, in addition to I exclusively agree.
Now, permit me offering a gentle critique.
How are nosotros doing towards the Tucker regime? Not well.
The Dodd-Frank in addition to Basel “regime” has no serious limits at all. Ask yourself, what institutions are not “systemic” in addition to cannot boot the bucket so designated? What institutions or creditors won’t be bailed out; can’t be bailed out? What are the securities the Fed or Treasury won’t and can’t buy or lend against? What are the property prices prices that they won’t and can’t prop up?
Paul points out the difficulties. Yes, “constraints” are good. But just what constraints? We tin channel Bagehot, “against expert collateral,” to “illiquid but non insolvent” institutions. Except, every bit Paul reminds us, what’s expert collateral, when noone volition receive got anything but Treasuries? How exercise you lot tell illiquid from insolvent when prices receive got tanked in addition to markets are frozen? It’s non so easy.
More deeply, the Bagehot rules are flawed. If it were clear who is illiquid in addition to who is insolvent, at that topographic point wouldn’t live a crisis. Private lenders would happily back upwards the clearly solvent. And runs hap at institutions that investors fright are insolvent. If you lot desire to halt runs you lot receive got to prop upwards at to the lowest degree the creditors of potentially insolvent institutions. Bagehot’s rules may constrain the key bank; they may live expert rules for a prudent investor, they may address moral hazard. But they are non apparently optimal rules to halt crisis or to forestall them from occurring inwards the commencement place.
Worse, when nosotros figure all this out, how exercise nosotros write binding laws or regulations that volition effectively constrain bailout-hungry officials? For example, Paul Volcker proposed a fine clear rule, “thou shalt non finance proprietary trading alongside deposits.” Which, 600 pages in addition to counting later, is utter mush.
So hither nosotros are, half dozen years after our crisis — or 82 years after 1932, or 113 years after 1907, or, heck, 300 years after 1720— in addition to every bit eminent a thinker in addition to practitioner every bit Paul even so needs to invite time to come idea on what these rules ought to be, permit solitary only what legal restrictions volition genuinely enforce them in addition to communicate that expectation.
I fright that the side past times side crisis volition live upon us long earlier Paul has figured it out, in addition to a century earlier he gets the Basel committee, the Fed, ECB, FSOC, Congress, Parliament, SEC, in addition to so on to boot the bucket along.
***
So, I grip alongside pretty much all Paul has to say. but I infer the reverse message. If this is what it takes to rescue the identify of cards, in addition to so nosotros demand a unlike house, i non made of cards. We demand to halt crises from happening inwards the commencement place.
To its credit, that is the other one-half of our contemporary policy response: This time, finally, the reason forces of regulators in addition to stress testers volition reckon the crisis coming; alongside their Talmudic rules in addition to interpretations, in addition to their keen discretion, they volition halt whatever “systemically important” financial establishment from losing money, despite the moral peril sirens, in addition to without turning that financial organisation into something resembling the Italian nation telephone fellowship circa 1965. Good luck alongside that.
Consider an alternative: Suppose banks had to fund risky lending past times issuing equity in addition to long-term debt. Suppose mortgage-backed securities were funded past times long-only, floating NAV usual funds, non overnight repo. Suppose all fixed-value demandable assets had to live backed 100% past times our abundant furnish of short-term Treasuries. Then nosotros genuinely would non receive got runs inwards the commencement place. And a lot of unemployed regulators.
Why exercise nosotros non receive got such a world? Originally, because you lot can’t exercise it alongside the financial, computational, in addition to communications technology scientific discipline of the 1930s or 1960s. But straight off nosotros can. More recently, I think, because moral peril so subsidizes the electrical flow frail system. But straight off nosotros tin alter that.
Paul mentioned this possibility, but gave upwards quickly, conditioning his remarks on a stance that monastic enjoin has decided it wants fractional reserve banking. Well, maybe monastic enjoin needs to rethink that decision.
Really, only why is it so vital to relieve a financial organisation soaked inwards run-prone overnight debt? Even if borrowers powerfulness receive got to pay 50 reason points to a greater extent than (which I doubt), is that worth a continual serial of crises, 10% or to a greater extent than downsteps inwards GDP, 10 1000000 losing their jobs inwards the States alone, a 40% ascent inwards debt to GDP, in addition to the strangling cost of our financial regulations?
***
Influenza A virus subtype H5N1 in conclusion point. Paul unites financial alongside monetary in addition to financial policy. That’s crucial. The in conclusion crisis raised States national debt from 60% to over 100% of GDP. The side past times side i volition require more. At some indicate nosotros can’t borrow that much.
But receive got this idea i pace further. The side past times side crisis could good live a sovereign debt crisis, non a repetition of a existent estate-induced run. Crises are past times Definition somewhat unexpected, in addition to come upwards from unexpected sources.
To live concrete, suppose Chinese financial markets blow up, surprise, surprise discovering a lot of insolvent debt. The stress is also much for the International Monetary Fund in addition to Europe, so Hellenic Republic goes, followed past times Italia Kingdom of Spain in addition to Portugal, one-half of Latin America in addition to a few American States. Pair that alongside state of war inwards the middle due east — Isis explodes a dingy bomb, say — requiring several trillion dollars.
Now Governments are the ones inwards trouble. They won’t live able to borrow trillions more, bail out banks or lend of in conclusion resort. In a global sovereign debt crisis, fifty-fifty Paul’s regime would plough out to live a superb Maginot line. The electrical flow regime wouldn’t live that strong.
Influenza A virus subtype H5N1 financial organisation deeply subject on the authorities pose would live finished. This is the lesson of Europe. Influenza A virus subtype H5N1 southern authorities default would receive got piddling consequences if its banks were non so embroiled inwards authorities finances.
But a financial organisation uncoupled from authorities finances would survive.
***
In sum, I cheer pretty much everything Paul said. But It’s an outline for a programme that volition receive got decades to create total in. And all inwards the service of keeping the identify of overnight debt cards going.
So the lesson I receive got is that instead, nosotros should finally receive got seriously the other centuries - old, unproblematic alternative: equity-funded banking, government-provided interest-paying money, mirroring that keen 19th century innovation, government-provided banknotes, in addition to a purge of run-prone assets.
***
PS:
Avoiding the usual academic inquiry of what should the Fed do, in addition to the endless media inquiry will-she-or-won't she enhance rates, this conference focused on how central banks should brand decisions. Particularly inwards the context of legislation to constrain the Fed coming from Congress, alongside financial dirigisme in addition to "macro-prudential" policy an increasing temptation, I establish these moments of reflection quite useful.
Some of the issues: Should the Fed follow an "instrument rule," similar the Taylor rule? Should it receive got "goal," similar an inflation target, but in addition to so broad latitude to exercise what it takes to achieve that goal? What structures should implement such a rule? Implicit inwards a dominion that the Fed should exercise things, similar target inflation in addition to employment, is an implicit dominion that it should ignore others, similar property prices, substitution rates in addition to so on. (I think this is much also oft overlooked. As financial reform should start past times delineating what is not systemic, in addition to thus exempt from regulation, monetary policy rules should start past times maxim what the Fed should ignore.) Should that limitation live to a greater extent than explicit? What's the right governance structure? Should nosotros maintain the regional Feds? How should Fed meetings live conducted? Is "transparency" the enemy of productive debate? How much discretion tin an agency receive got piece remaining independent? And so on.
I was going to post service thoughts on he whole conference, but John Taylor only posted an fantabulous summary, so I'll only indicate you lot there.
My labor was to verbalise over Paul Tucker's (ex Deputy Governor of the Bank of England) thoughtful paper, "How Can Central Banks Deliver Credible Commitment in addition to live “Emergency Institutions" Paul's newspaper starts to think deeply close independent regulatory agencies inwards general, in addition to monetary in addition to financial policy together. My word is narrower. I'll exceed on the word (pdf here) every bit today's weblog post, every bit it powerfulness live interesting to weblog readers.
Comments on “How Can Central Banks Deliver Credible Commitment in addition to live “Emergency Institutions” By Paul Tucker
May 21 2015
Let me start past times summarizing, in addition to cheering, Paul’s of import points.
The measure stance says that perchance monetary policy should follow a rule, but financial-crisis firefighting needs discretion; a large mop to build clean upwards large messes; flexibility to “do what it takes”; “emergency” powers to acquire by emergencies.
I think Paul is telling us, politely, that this is rubbish. Crisis-response in addition to lender-of-last-resort actions demand rules, or “regimes,” fifty-fifty to a greater extent than than monetary policy actions demand rules. At a basic grade whatever determination is a mapping from states of the reason to actions. “Discretion” only way non talking close it.
More deeply, you lot demand rules to constrain this mapping, to pre-commit yourself ex-ante against actions that you lot volition lead ex-post, in addition to regret. Monetary policy rules guard against “just this once” inflations. Lender of in conclusion resort rules guard against “just this once” bailouts in addition to loans.
But you lot demand rules fifty-fifty more, when the organisation responds to its expectations of your actions. And preventing crises is all about controlling this moral hazard.
To halt runs, our governments guarantee deposits in addition to other loans; they bail out institutions in addition to their creditors; they purchase upwards assets to enhance prices, in addition to they lend similar crazy. But knowing this, financial institutions receive got to a greater extent than adventure than they would otherwise take, in addition to investors lend without monitoring, making crises worse. Institutions that tin borrow at in conclusion resort don’t laid upwards backup lines of credit, don’t sentinel the character of their collateral, in addition to don’t purchase expensive pose options in addition to other insurance, making crises worse. Investors who know that the Fed volition halt “fire sales,” don’t maintain some cash around for “buying opportunities,” making burn sales worse. “Big banks are also complex to boot the bucket through bankruptcy,” the mantra repeats. But why exercise people lend to them, without the protections of bankruptcy? Because they know creditors, if non management in addition to equity, volition live protected.
“The reason is ending. Influenza A virus subtype H5N1 crisis is no fourth dimension to worry close moral hazard,” bankers in addition to authorities officials told us in conclusion time, in addition to volition tell us again. But the reason does non end, in addition to actions taken inwards this crisis are just the crusade of moral peril for the side past times side one.
This isn’t theory. When the Fed in addition to Treasury bailed out Bear Stearns, in addition to peculiarly its creditors, markets learned “Oh, Fed in addition to Treasury won’t permit an investment banking venture broker-dealer boot the bucket under.” Lehman turned downwards uppercase offers, in addition to Reserve Fund losses on Lehman newspaper were plenty to crusade it to neglect inwards a run. (This is an update: reckon below.)
The severe crisis in addition to recession coincident alongside Lehman’s failure, together alongside the massive in addition to improvised reply — many flavors of Tarp, auto fellowship bailouts, in addition to so on — receive got arguably created the “rule” inwards participants’ minds close what volition hap side past times side time.
Plans, self-imposed rules, promises, guidance, in addition to tradition are non enough. Given the power, every i of us volition bail out. We won’t adventure beingness the captain of the Titanic, in addition to we’ll permit the side past times side guy or gal bargain alongside moral hazard. Influenza A virus subtype H5N1 key banker facing a crisis is similar a manlike someone parent belongings an H2O ice cream cone, facing a hungry three-year old. Sure, Mom’s dominion says dinner e'er earlier dessert. We know what’s happening to that H2O ice cream cone.
The key banking venture in addition to Treasury must non be able to bail out what they should non bail out, to lend where they should non lend, to protect creditors who should lose money. That’s the only way to halt it. More importantly, it’s the only way to persuade the moral hazarders that all the fine words inwards the blast volition non melt rapidly inwards the emergency.
Two key quotes summarize the Tucker view, in addition to I exclusively agree.
Prerequisites for whatever such regime are that its terms should mitigate the inherent problems of adverse choice in addition to moral hazard; live time-consistent; in addition to provide clarity close the amount in addition to nature of ‘fiscal risk’ that the key banking venture is permitted to receive got on the state’s behalf.
At a schematic level, a money-credit constitution for today powerfulness receive got 5 components: inflation targeting summation a reserves requirement that increased alongside a bank’s leverage summation a liquidity-reinsurance regime summation a resolution regime for bankrupt banks summation constraints on how the key banking venture is complimentary to pursue its mandate.***
Now, permit me offering a gentle critique.
How are nosotros doing towards the Tucker regime? Not well.
The Dodd-Frank in addition to Basel “regime” has no serious limits at all. Ask yourself, what institutions are not “systemic” in addition to cannot boot the bucket so designated? What institutions or creditors won’t be bailed out; can’t be bailed out? What are the securities the Fed or Treasury won’t and can’t buy or lend against? What are the property prices prices that they won’t and can’t prop up?
Paul points out the difficulties. Yes, “constraints” are good. But just what constraints? We tin channel Bagehot, “against expert collateral,” to “illiquid but non insolvent” institutions. Except, every bit Paul reminds us, what’s expert collateral, when noone volition receive got anything but Treasuries? How exercise you lot tell illiquid from insolvent when prices receive got tanked in addition to markets are frozen? It’s non so easy.
More deeply, the Bagehot rules are flawed. If it were clear who is illiquid in addition to who is insolvent, at that topographic point wouldn’t live a crisis. Private lenders would happily back upwards the clearly solvent. And runs hap at institutions that investors fright are insolvent. If you lot desire to halt runs you lot receive got to prop upwards at to the lowest degree the creditors of potentially insolvent institutions. Bagehot’s rules may constrain the key bank; they may live expert rules for a prudent investor, they may address moral hazard. But they are non apparently optimal rules to halt crisis or to forestall them from occurring inwards the commencement place.
Worse, when nosotros figure all this out, how exercise nosotros write binding laws or regulations that volition effectively constrain bailout-hungry officials? For example, Paul Volcker proposed a fine clear rule, “thou shalt non finance proprietary trading alongside deposits.” Which, 600 pages in addition to counting later, is utter mush.
So hither nosotros are, half dozen years after our crisis — or 82 years after 1932, or 113 years after 1907, or, heck, 300 years after 1720— in addition to every bit eminent a thinker in addition to practitioner every bit Paul even so needs to invite time to come idea on what these rules ought to be, permit solitary only what legal restrictions volition genuinely enforce them in addition to communicate that expectation.
I fright that the side past times side crisis volition live upon us long earlier Paul has figured it out, in addition to a century earlier he gets the Basel committee, the Fed, ECB, FSOC, Congress, Parliament, SEC, in addition to so on to boot the bucket along.
***
So, I grip alongside pretty much all Paul has to say. but I infer the reverse message. If this is what it takes to rescue the identify of cards, in addition to so nosotros demand a unlike house, i non made of cards. We demand to halt crises from happening inwards the commencement place.
To its credit, that is the other one-half of our contemporary policy response: This time, finally, the reason forces of regulators in addition to stress testers volition reckon the crisis coming; alongside their Talmudic rules in addition to interpretations, in addition to their keen discretion, they volition halt whatever “systemically important” financial establishment from losing money, despite the moral peril sirens, in addition to without turning that financial organisation into something resembling the Italian nation telephone fellowship circa 1965. Good luck alongside that.
Consider an alternative: Suppose banks had to fund risky lending past times issuing equity in addition to long-term debt. Suppose mortgage-backed securities were funded past times long-only, floating NAV usual funds, non overnight repo. Suppose all fixed-value demandable assets had to live backed 100% past times our abundant furnish of short-term Treasuries. Then nosotros genuinely would non receive got runs inwards the commencement place. And a lot of unemployed regulators.
Why exercise nosotros non receive got such a world? Originally, because you lot can’t exercise it alongside the financial, computational, in addition to communications technology scientific discipline of the 1930s or 1960s. But straight off nosotros can. More recently, I think, because moral peril so subsidizes the electrical flow frail system. But straight off nosotros tin alter that.
Paul mentioned this possibility, but gave upwards quickly, conditioning his remarks on a stance that monastic enjoin has decided it wants fractional reserve banking. Well, maybe monastic enjoin needs to rethink that decision.
Really, only why is it so vital to relieve a financial organisation soaked inwards run-prone overnight debt? Even if borrowers powerfulness receive got to pay 50 reason points to a greater extent than (which I doubt), is that worth a continual serial of crises, 10% or to a greater extent than downsteps inwards GDP, 10 1000000 losing their jobs inwards the States alone, a 40% ascent inwards debt to GDP, in addition to the strangling cost of our financial regulations?
***
Influenza A virus subtype H5N1 in conclusion point. Paul unites financial alongside monetary in addition to financial policy. That’s crucial. The in conclusion crisis raised States national debt from 60% to over 100% of GDP. The side past times side i volition require more. At some indicate nosotros can’t borrow that much.
But receive got this idea i pace further. The side past times side crisis could good live a sovereign debt crisis, non a repetition of a existent estate-induced run. Crises are past times Definition somewhat unexpected, in addition to come upwards from unexpected sources.
To live concrete, suppose Chinese financial markets blow up, surprise, surprise discovering a lot of insolvent debt. The stress is also much for the International Monetary Fund in addition to Europe, so Hellenic Republic goes, followed past times Italia Kingdom of Spain in addition to Portugal, one-half of Latin America in addition to a few American States. Pair that alongside state of war inwards the middle due east — Isis explodes a dingy bomb, say — requiring several trillion dollars.
Now Governments are the ones inwards trouble. They won’t live able to borrow trillions more, bail out banks or lend of in conclusion resort. In a global sovereign debt crisis, fifty-fifty Paul’s regime would plough out to live a superb Maginot line. The electrical flow regime wouldn’t live that strong.
Influenza A virus subtype H5N1 financial organisation deeply subject on the authorities pose would live finished. This is the lesson of Europe. Influenza A virus subtype H5N1 southern authorities default would receive got piddling consequences if its banks were non so embroiled inwards authorities finances.
But a financial organisation uncoupled from authorities finances would survive.
***
In sum, I cheer pretty much everything Paul said. But It’s an outline for a programme that volition receive got decades to create total in. And all inwards the service of keeping the identify of overnight debt cards going.
So the lesson I receive got is that instead, nosotros should finally receive got seriously the other centuries - old, unproblematic alternative: equity-funded banking, government-provided interest-paying money, mirroring that keen 19th century innovation, government-provided banknotes, in addition to a purge of run-prone assets.
***
PS:
- Thomas Humphrey writes an interesting history of Bagehot's rules inwards the Richmond Fed Review, Averting Financial Crises: Advice from Classical Economists.
- Renee Haltom has an fantabulous brusk article inwards the same issue, Last-Resort Lending for the 21st Century summarizing electrical flow views.
- A spate of word articles came out in conclusion summertime suggesting Lehman powerfulness receive got been "solvent" after all, here, here, here. Of course of report "solvent" at ex-post prices selects on i nation of the world. Same comment for how much money the authorities in addition to Fed made on bailout deals.
- One interesting indicate came upwards at the conference (I forget who said this). If the key banking venture lends against "good collateral," that takes away of import assets that rightfully belong to debt-holders, in addition to makes them to a greater extent than probable to run.
** Update: I originally wrote incorrectly that the Reserve Fund had 40% of its assets inwards Lehman. A correspondent corrected me in addition to pointed me to McCabe, Holscher, Cipriani, in addition to Martin's BPEA paper whose footnote 27 states
The Primary Fund’s losses were caused largely past times its $785 1000000 inwards holdings of Lehman debt obligations (1.3 percentage of the fund’s assets) at the fourth dimension of Lehman’s bankruptcy. RCMI, the adviser to the fund, announced at close four pm on Tuesday, September 16, 2008, that the NAV of the fund’s shares had dropped past times 3 percent, to 97 cents, presumably because large redemptions had farther eroded the NAV.
The correspondent adds that money funds can’t receive got that much exposure to i counter-party because of limits inwards dominion 2a-7. 1.3 / 3 is close 40%, which must live the number Im remembering -- 40% of the losses, non the assets, came from Lehman. This is fifty-fifty to a greater extent than interesting, because it suggests a run on the fund, rather than large actual losses, was the key problem. Moral, banking venture check your numbers, fifty-fifty ones you lot think you lot shout back genuinely well.
No comments