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    Is the 'vid going to push us into a GFC Redux scenario? Loads of people aren't going to be able to pay their mortgages, MBSs, CDOs and all those sorts of financial instruments are still out there, but rebranded, as far as I can pick up and although banks are better capitalised, I believe, they're still really exposed to a collapse where commercial property looks like it is about to lose value.

    Or am I classic example of having read The Big Shorts and seen it twice and being full of a little knowledge?

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      Originally posted by sw2borshch View Post
      Or am I classic example of having read The Big Shorts and seen it twice and being full of a little knowledge?

      TBH, I'm not sure that a "Razor" Ruddock biopic is going to be that informative in such matters.

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        Just think, if I had typed The Big Shirt you could have made the same joke.

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          With appropriate caveats about the extent of wave 1.5/2 and the political impasse in the US, the short answer is probably not, if you mean a collapse of the banking system in the developed world. Clearly we're having and going to continue having a very steep recession, and lots of people will lose lots of money, if they haven't already. For all the faults of the post-GFC regulatory revamp, banks in Europe and the US really are much better capitalised, with some exceptions in places like Italy and Greece where they haven't really addressed the problems from the last time round, and they're much, much more liquid. As for "all those sorts of financial instruments", the ones that really contributed to the transmission of the US mortgage crisis around the globe actually aren't there any more, though less levered securitisations still exist (and are very active in the US, less so in Europe). Certainly there is going to be a fall in commercial property values (and has already been in retail), and that will cause losses in CMBS.

          Outside of CMBS, CLOs are looking like the most likely vector for transmission , simply because there's so much high yield debt out there and corporate leverage is so high. Especially in the US, lots of those companies are going to go bust. Investors are going to lose a lot of money, and some of those investors will be banks (one of the biggest single losses for banks last time round was a hung loan for Boots). US insurers seem more at risk to me, but that's an impression rather than something I've really investigated. But the mechanisms for turning that into a full-on systemic collapse aren't really there this time round, though undoubtedly new faultlines will emerge.

          You also shouldn't discount the vast amounts of money that governments have poured into the financial system early this time round, in both liquidity provision and support for borrowers. To a certain extent that is just transferring risk from the banks to the taxpayer, but it's also preventing the total loss of confidence that caused much of the damage last time round. After all the dust settled, direct losses in subprime mortgages ended up not being all that high, compared to what the market pricing at the depth of the crisis indicated. Most of the (subprime) losses that that hit banks hard in that crisis were effectively crystallised mark-to-market losses in one form or another.

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            Originally posted by Ginger Yellow View Post
            crystallised mark-to-market losses
            Please, what does this mean (I expect I'm the only one not understanding)?

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              Ta! A beautifully pitched and reassuring answer.

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                Originally posted by Sporting View Post

                Please, what does this mean (I expect I'm the only one not understanding)?
                So, in credit markets, there are two main ways to lose money (obviously all of this is a gross oversimplification, but it will suffice for now) - someone not paying what they owe, and the market value of the financial asset (eg loan, bond, other security) falling. Obviously, if someone doesn't pay, the money isn't there, you have less cash than you thought you would have, it's a "real" loss. In the abstract, the latter type of loss, a mark-to-market loss is not as "real", because if the value can fall, it can also go up again. As long as nothing intervenes and the value recovers, no harm done, you still have the same cashflow you would always have. Now, in practice, this isn't the case, mark to market losses have real consequences. If you're a bank, you generally have to mark your financial assets to the market value (fair value, technically), so market losses result in a hit to your profits even if the cash coming in is the same. Worse still, if you're a fund, not only do you take a hit to your net asset value, which will impact your share price if you're listed, but if you've borrowed against those assets, your lender will require you to provide more collateral to protect itself. So there's a direct impact on the fund's cashflow that way. And if the fund doesn't have the cash to do so, then the lender can seize the assets, and will in all likelihood sell them pretty quickly, depressing prices even further and causing a real loss to the fund (and maybe the lender). That process of turning a paper valuation loss into a "real" reduction in value is called crystallising the mark-to-market loss. There are various other mechanisms by which this can happen, I've only touched on a couple of the most common ones. It's most prevalent where there is leverage and/or some form of maturity transformation - borrowing short to lend long, investing in illiquid assets while offering your own investors daily liquidity, that sort of thing.

                The global financial crisis was as severe as it was mainly because there had grown up in the previous decade a combination of leverage upon leverage and a plethora of means by which crystallisation of mark-to-market losses was embedded deep into the financial system, particularly for banks. Regulation had not really caught up and there was very little understanding of this by "regular" investors, by which I don't mean the man on the Clapham omnibus, I mean managers of billions of dollars of investments. Hence mass liquidation, or other actions that crystallised losses. A lot of the really big losses that were incurred by banks in particular in the relatively early days of the crisis were on instruments that magnified mark-to-market losses, like Citi's liquidity puts.

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                  Think Metro will have to pay double digits this time?

                  The Bank of England MREL framework review is expected by end 2020. Depending on the outcome, the Board may consider raising ?200-300 million further MREL in H1 2021. Ahead of this, MREL resources may fall below the sum of the firm's MREL requirement and buffers (the loss absorbing capacity) for a period of time.

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                    Big merger mooted in Spain:

                    http://thecorner.eu/spain-economy/ba...ntander/88642/

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                      Rabobank is "paying" negative interest on its deposits. Only after the first EUR 250k though, so not exactly an issue for most people.

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                        I would think that some corporate treasurers would be concerned (though they likely have money market sweep arrangements rather than pure deposit accounts)

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                          Yes, I'm actually chasing up that angle professionally. But retail customers aren't going to be affected unless they're very rich and very silly.

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                            They are finally pushing that down to customers? UBS and DB have been doing this on banks for a good few years.

                            Treasurers have more to worry about in SOFIR. That is going ro be a reconciliation nightmare given I had to explain swap cashflows to enough of them.

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                              Yeah, it's the norm for intrabank and other financial firm deposits, which are generally referenced off Euribor or Eonia anyway.

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                                It will certainly be a rude awakening for some then - classic lazy Treasury ops need to be a lot more lean and efficient. Having cash on hand in EUR is a really bad strategy.

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                                  Dunno about the Netherlands, but I was genuinely surprised at the number of such people and the volume of such accounts in Switzerland (among residents, not those just parking funds).

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                                    Rabo said 98.7% of customers unaffected, though they didn't specify by deposit balance or number so I'm assuming the latter.

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                                      The most dominant banks in each Spanish Province. I wonder if similar maps exist or are relevant for the USA, Germany, France etc etc:

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                                        I hadn't realised that Caixa spread beyond Catalunya. Whatever happened to BBV - did they get swallowed up by another bank? Looking at that map, Kutxabank?

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                                          Good question to which I don't know the answer. Maybe they are stronger all round and internationally but not the biggest presence in any one Spanish region.

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                                            Originally posted by ad hoc View Post
                                            Whatever happened to BBV - did they get swallowed up by another bank?
                                            BBVA is the second biggest bank in Spain*, but it's mainly international (only 24% of revenues in Spain) and its domestic customer base is mainly corporate, though it does also do retail banking. It's huge in Latin America and owns Garanti in Turkey. Apparently they still have 2,600 branches in Spain, but I suspect they're not particularly concentrated in any one region, even the Basque country. It's very much been a national/international bank for a long time.

                                            As for CaixaBank, it grew outside of Catalunya after a series of mergers in the wake of the 2008 financial crisis and the Eurozone crisis.

                                            *Until the Caixabank/Bankia merger completes, anyway
                                            Last edited by Ginger Yellow; Yesterday, 07:46.

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                                              The map shows the biggest presence in each region, so a pile of second place finishes, for example, wouldn't register.

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                                                Here is the US map, which looks to be calculated on the same basis (number of branches)

                                                To think I remember when banks were prohibited from having branches outside their home state

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                                                  I tried googling that to find out when that was, and google asked me:
                                                  Do you mean: when were blacks prohibited from having branches outside their own state

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                                                    . Ever since the National Bank Act, national-chartered banks were effectively prohibited from interstate banking. This prohibition was further enshrined in the McFadden Act of 1927. The restriction on interstate banking prevented banks from achieving geographic diversification, making them especially vulnerable to local economic disruptions. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 repealed this prohibition.
                                                    First Interstate began to challenge the old model in the 80s, using an alliance structure.

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