Comments on: Banks May Invoke “Market Disruption Clause” to Raise Rates http://www.nakedcapitalism.com/2008/09/banks-may-invoke-market-disruption.html Sun, 22 Nov 2009 20:38:51 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: pedant losing patience http://www.nakedcapitalism.com/2008/09/banks-may-invoke-market-disruption.html#comment-18243 pedant losing patience Mon, 29 Sep 2008 17:26:00 +0000 http://www.nakedcapitalism.com/2008/09/banks-may-invoke-%e2%80%9cmarket-disruption-clause%e2%80%9d-to-raise-rates/#comment-18243 I believe the correct term is:<br/><br/>deflationary bust. I believe the correct term is:

deflationary bust.

]]> By: Anonymous http://www.nakedcapitalism.com/2008/09/banks-may-invoke-market-disruption.html#comment-18204 Anonymous Mon, 29 Sep 2008 14:22:00 +0000 http://www.nakedcapitalism.com/2008/09/banks-may-invoke-%e2%80%9cmarket-disruption-clause%e2%80%9d-to-raise-rates/#comment-18204 Matt, I agree. An increase in interest rates will not increase consumer demand.<br/><br/>A rise in interest rates at this point will be another blow to American Business and add to the problems of state and local government budgets in short order, imo. The problems confronting Main St are getting more serious with this move.<br/><br/>River Matt, I agree. An increase in interest rates will not increase consumer demand.

A rise in interest rates at this point will be another blow to American Business and add to the problems of state and local government budgets in short order, imo. The problems confronting Main St are getting more serious with this move.

River

]]> By: Matt Dubuque http://www.nakedcapitalism.com/2008/09/banks-may-invoke-market-disruption.html#comment-18198 Matt Dubuque Mon, 29 Sep 2008 13:58:00 +0000 http://www.nakedcapitalism.com/2008/09/banks-may-invoke-%e2%80%9cmarket-disruption-clause%e2%80%9d-to-raise-rates/#comment-18198 Matt Dubuque<br/><br/>I would argue that such a rise in interest rates is NOT inflationary.<br/><br/>Just the opposite.<br/><br/>Will this rise in interest rates spur consumer demand?<br/><br/>Every indicator I see shows that we need to be vigilant against a deflationary burst, which is now highly likely.<br/><br/>The Fed quarterly survey of lending expectations due out in October should confirm this.<br/><br/>Matt Dubuque<br/>mdubuque@yahoo.com Matt Dubuque

I would argue that such a rise in interest rates is NOT inflationary.

Just the opposite.

Will this rise in interest rates spur consumer demand?

Every indicator I see shows that we need to be vigilant against a deflationary burst, which is now highly likely.

The Fed quarterly survey of lending expectations due out in October should confirm this.

Matt Dubuque
mdubuque@yahoo.com

]]> By: Anonymous http://www.nakedcapitalism.com/2008/09/banks-may-invoke-market-disruption.html#comment-18189 Anonymous Mon, 29 Sep 2008 12:51:00 +0000 http://www.nakedcapitalism.com/2008/09/banks-may-invoke-%e2%80%9cmarket-disruption-clause%e2%80%9d-to-raise-rates/#comment-18189 So what happens to the WB CDS pools? Do those go terminal due to the change in control? So what happens to the WB CDS pools? Do those go terminal due to the change in control?

]]> By: ft alpha http://www.nakedcapitalism.com/2008/09/banks-may-invoke-market-disruption.html#comment-18188 ft alpha Mon, 29 Sep 2008 12:43:00 +0000 http://www.nakedcapitalism.com/2008/09/banks-may-invoke-%e2%80%9cmarket-disruption-clause%e2%80%9d-to-raise-rates/#comment-18188 Citigroup Inc. to Acquire Banking Operations of Wachovia<br/>FDIC, Federal Reserve and Treasury Agree to Provide Open Bank Assistance to Protect Depositors<br/>FOR IMMEDIATE RELEASE<br/>September 29, 2008 Media Contact:<br/>Andrew Gray (202) 898-7192<br/>angray@fdic.gov<br/>Citigroup Inc. will acquire the banking operations of Wachovia Corporation; Charlotte, North Carolina, in a transaction facilitated by the Federal Deposit Insurance Corporation and concurred with by the Board of Governors of the Federal Reserve and the Secretary of the Treasury in consultation with the President. All depositors are fully protected and there is expected to be no cost to the Deposit Insurance Fund. Wachovia did not fail; rather, it is to be acquired by Citigroup Inc. on an open bank basis with assistance from the FDIC.<br/><br/>“For Wachovia customers, today’s action will ensure seamless continuity of service from their bank and full protection for all of their deposits.” said FDIC Chairman Sheila C. Bair. “There will be no interruption in services and bank customers should expect business as usual.”<br/><br/>Citigroup Inc. will acquire the bulk of Wachovia’s assets and liabilities, including five depository institutions and assume senior and subordinated debt of Wachovia Corp. Wachovia Corporation will continue to own AG Edwards and Evergreen. The FDIC has entered into a loss sharing arrangement on a pre-identified pool of loans. Under the agreement, Citigroup Inc. will absorb up to $42 billion of losses on a $312 billion pool of loans. The FDIC will absorb losses beyond that. Citigroup has granted the FDIC $12 billion in preferred stock and warrants to compensate the FDIC for bearing this risk.<br/><br/>In consultation with the President, the Secretary of the Treasury on the recommendation of the Federal Reserve and FDIC determined that open bank assistance was necessary to avoid serious adverse effects on economic conditions and financial stability. Citigroup Inc. to Acquire Banking Operations of Wachovia
FDIC, Federal Reserve and Treasury Agree to Provide Open Bank Assistance to Protect Depositors
FOR IMMEDIATE RELEASE
September 29, 2008 Media Contact:
Andrew Gray (202) 898-7192
angray@fdic.gov
Citigroup Inc. will acquire the banking operations of Wachovia Corporation; Charlotte, North Carolina, in a transaction facilitated by the Federal Deposit Insurance Corporation and concurred with by the Board of Governors of the Federal Reserve and the Secretary of the Treasury in consultation with the President. All depositors are fully protected and there is expected to be no cost to the Deposit Insurance Fund. Wachovia did not fail; rather, it is to be acquired by Citigroup Inc. on an open bank basis with assistance from the FDIC.

“For Wachovia customers, today’s action will ensure seamless continuity of service from their bank and full protection for all of their deposits.” said FDIC Chairman Sheila C. Bair. “There will be no interruption in services and bank customers should expect business as usual.”

Citigroup Inc. will acquire the bulk of Wachovia’s assets and liabilities, including five depository institutions and assume senior and subordinated debt of Wachovia Corp. Wachovia Corporation will continue to own AG Edwards and Evergreen. The FDIC has entered into a loss sharing arrangement on a pre-identified pool of loans. Under the agreement, Citigroup Inc. will absorb up to $42 billion of losses on a $312 billion pool of loans. The FDIC will absorb losses beyond that. Citigroup has granted the FDIC $12 billion in preferred stock and warrants to compensate the FDIC for bearing this risk.

In consultation with the President, the Secretary of the Treasury on the recommendation of the Federal Reserve and FDIC determined that open bank assistance was necessary to avoid serious adverse effects on economic conditions and financial stability.

]]> By: M http://www.nakedcapitalism.com/2008/09/banks-may-invoke-market-disruption.html#comment-18186 M Mon, 29 Sep 2008 12:22:00 +0000 http://www.nakedcapitalism.com/2008/09/banks-may-invoke-%e2%80%9cmarket-disruption-clause%e2%80%9d-to-raise-rates/#comment-18186 The problem is not so much te elevated level of Libor and whether or not a bank can fund itself at that level, as well as the steepness of the curve. Where in the past a funding of 12M used to be equal to libor + or - a few basispoints, is it now easily libor + 30 or 40 bps.<br/>That means if a company borrows a sum for 12 months with a 1m resetting period, banks that not charge libor + 40 bps or more are actually losing on the hedge for that loan. Such a wide spread is not seen in years or even decades.<br/>With the coverage ratio rules, banks have to make sure that against a certain amounts of loans there is a deposit for a similar period.<br/>Past 1 year these funding pressure are increased even more since these days banks have to pay libor equivalents + a lot of bps to raise any funding for that maturity, even the so called good banks pay easily 50 bps over in maturities above 3 years. The problem is not so much te elevated level of Libor and whether or not a bank can fund itself at that level, as well as the steepness of the curve. Where in the past a funding of 12M used to be equal to libor + or – a few basispoints, is it now easily libor + 30 or 40 bps.
That means if a company borrows a sum for 12 months with a 1m resetting period, banks that not charge libor + 40 bps or more are actually losing on the hedge for that loan. Such a wide spread is not seen in years or even decades.
With the coverage ratio rules, banks have to make sure that against a certain amounts of loans there is a deposit for a similar period.
Past 1 year these funding pressure are increased even more since these days banks have to pay libor equivalents + a lot of bps to raise any funding for that maturity, even the so called good banks pay easily 50 bps over in maturities above 3 years.

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