As we commemorate the 10th anniversary of the Lehman Brothers bankruptcy, which marked the point where the US financial system truly moved into crisis, it’s worth reviewing the innovations that led to the real estate bubble that lay behind Lehman’s (and Bear Stearns’) problems: the separation of mortgage origination from who owned the debt; securitisation;… Continue Reading
Tag Archives: balance sheets
Can a central bank go bust?
Central banks have balance sheets like other banks and in theory their liabilities can exceed their assets, meaning they are insolvent. But they can always create new money so they can settle their debts. So can they really go bust? * A bank (or any other company) is insolvent if its assets are less than… Continue Reading
How can we tell if a bank is strong?
This week it was reported (*) that the European Commission was investigating some southern EU nations to see if they had unfairly and illegally allowed banks to count deferred tax assets towards their capital. What does this mean and what does it tell us about bank financial strength? We can assess bank strength by asking… Continue Reading
Even now, banks are still not safely capitalised
A recent speaker on the MFin mentioned, almost in passing, that he didn’t think the Basel III regulatory system would actually be implemented, so flawed was its approach. I thought this sounded a little exaggerated but a recent speech from the the Vice Chairman of the Federal Deposit Insurance Commission (FDIC), Thomas Hoenig, suggests our… Continue Reading