Metlife
What does "systemically important" mean? How tin terminate an institution, per se, locomote "systemically important?" The WSJ coverage of Judge Rosemary Collyer’s determination rescinding MetLife’s designation every bit a "systemically of import fiscal institution:" gives an interesting clue to how our regulators' thinking is evolving on this issue:
"Actively create out residuum sheets" is a fancy give-and-take for "sell assets." So in that place yous direct maintain it. "Systemically important" immediately only agency that an establishment mightiness sell assets, because selling assets mightiness lower property prices. "Contagion" too "systemically important" are no longer close runs; yous meet ane banking concern inwards problem too teach accept your coin out of a dissimilar one. "Contagion" too "systemically important" is no longer the (false, but plausible) domino theory, that if I default too owe yous money, yous default.
Policy is no longer only close stopping runs. Policy is non only close stopping whatever large banking concern from failing, or always only losing money. Policy is close stopping property prices from falling, too stopping fifty-fifty the little marginal additional autumn inwards prices that mightiness accompany ane large institution's sales. (Except that leverage too uppercase ratios immediately forcefulness institutions to sell fifty-fifty if they don't desire to, a delicious illustration of contradictory regulatory commands.)
Owen Lamont's classic characterizatiion of policy-maker's mental attitude toward selling short, immediately applies to selling at all.
The [Financial Stability Oversight] council argued — bromide warning — that “contagion tin terminate number when relatively small-scale direct, private losses drive fiscal institutions amongst widely dispersed exposures to actively create out their residuum sheets inwards a way that destabilizes markets.”It's non a bromide. It is a revealing capsule of how the FSOC headed past times Treasury thinks close this issue.
"Actively create out residuum sheets" is a fancy give-and-take for "sell assets." So in that place yous direct maintain it. "Systemically important" immediately only agency that an establishment mightiness sell assets, because selling assets mightiness lower property prices. "Contagion" too "systemically important" are no longer close runs; yous meet ane banking concern inwards problem too teach accept your coin out of a dissimilar one. "Contagion" too "systemically important" is no longer the (false, but plausible) domino theory, that if I default too owe yous money, yous default.
Policy is no longer only close stopping runs. Policy is non only close stopping whatever large banking concern from failing, or always only losing money. Policy is close stopping property prices from falling, too stopping fifty-fifty the little marginal additional autumn inwards prices that mightiness accompany ane large institution's sales. (Except that leverage too uppercase ratios immediately forcefulness institutions to sell fifty-fifty if they don't desire to, a delicious illustration of contradictory regulatory commands.)
Owen Lamont's classic characterizatiion of policy-maker's mental attitude toward selling short, immediately applies to selling at all.
Policymakers too the full general populace look to direct maintain an instinctive reaction that curt selling is morally wrong. Short selling has been characterized every bit inhuman, un-American, too against GodThe magazine nails the basic problem
For 8 years, federal regulators direct maintain failed to define exactly the “systemic risks” they claim they tin terminate position across the fiscal landscape.But no Definition makes it tardily to endlessly expand the word's meaning.
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