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Research December 2008

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19 Dec-08: Banks in the financial crisis, act II

by Laurent Quignon, Head of Banking Economics Research, BNP Paribas

The financial crisis has dramatically gathered momentum in the last few weeks. What was a creeping crisis suddenly escalated when a wave of bank bankruptcies spread throughout Continental Europe, resulting in governments reacting by implementing wide-ranging bailout plans. The banks that are the most exposed to risky structured products were caught between the devil and the blue sea, i.e. between the increase in losses and write-downs and the revival of stresses in the interbank market. Indeed, bank liquidity now seems to have clearly overtaken solvency among the grounds for concern. With the notable exception of Lehman Brothers, bailing out banks suffering from a shortfall in liquidity was the motive that led to the intervention of central banks or governments, as well as emergency acquisitions. The bankruptcy of Lehman Brothers, on 15 September, resulted in a real collective realisation of the scale of the threat that led to the G7 recommendations, followed by those of the Eurogroup, which were subsequently implemented according to national rescue plans. Looking forward to late 2009, trends in economic fundamentals hardly call for optimism... DOWNLOAD the White Paper here!

18 Dec-08: White Paper on Credit Economic Capital - Financial Predictive Analytics

After the Credit Crunch: The importance of Economic Capital and how to calculate it

by John A Morrison, Asymptotix

John A Morrison is a Solution Architect in Risk Management. He is Director, Solution Partnerships of Asymptotix and an advisor to REvolution Computing. He has just finished an important White Paper that is downloadable on our website.

This is a White Paper about "Economic Capital", i.e. the amount of capital which a Financial Institution needs in order to survive in a worst case scenario. Events of recent months prove that this is no longer an academic exercise. The Credit Crunch has seen Central Governments pumping fresh capital into the banks which were clearly undercapitalized and ill-prepared to deal with the crisis.

Economic Capital is now the focus of all banks, including the Bank of International Settlements (BIS) and the Central Banks. Computation of risk capital in an holistic and comprehensive manner is the key to recovery from this crisis episode and to ensuring sustained levels of security. REvolution Computing is leading the software response to effectively meet this challenge through the development of high performance components of its product ranges in appropriate configurations.

It has taken a crisis to bring the banks and their supervisors closer together, sharing a common objective and that at the very least is one good thing to evolve from this crisis. Supervisors and senior Bankers are at least on adjacent pages in 2008 and look to remain there as the requirements of what will be by any other name a Basel 3 framework are worked out and agreed upon in the coming months.

This paper:-

  • Is an exposition of how crucial both in terms of banking supervision and in terms of the individual bank’s strength, economic capital has become. The paper precisely defines economic capital both at the single institution level and at the systemic level.
  • Will demonstrate that best practice and supervisory requirements entail that every financial institution must calculate an appropriate quantum of economic return on an originated exposure, risk based position or portfolio.
  • Reveals how such a quantum of economic return is estimated or predicted based upon quantitative techniques or statistical analytics.
  • Argues that banks will now need to adopt ‘financial predictive analytics’ so that they can accurately estimate the amount of risk capital required to cover the true extent of risks to which they are exposed.

To access the White Paper go here!

17 Dec-08: Intro to parallel programming: 3 things you must teach

by Intel

Intel Software College Architect Clay Breshears stars in a new training material at the Intel Software Network that covers basic content any professor should teach when introducing parlallel programming. While not designed specifically for engineers, this content should also be of use for anyone seeking to understand the basicis of parallel programming on multi-core machines. You can watch Clay teach these modules here.

As of this writing only the slide presentation is available, but hopefully they’ll get the video link repaired soon. Intel is making these modules available as part of its Intel Software College efforts

Intel Software College course architects are developing course modules designed to be used at the university level to help teach programming models, techniques and tools. We are excited by this material and think that it would be valuable to software developers as well.

We will start making a number of these modules available today and roll more out in the future. Please let us know what you think of the modules; your feedback is key to continuing this program.

http://insidehpc.com/

17 Dec-08: ECB looks at radical lending plans

by Financial Times

Radical plans to reboot Europe’s bank lending market are being studied by the European Central Bank, a senior policymaker revealed on Monday after warning that financial market tensions could wreak significant further economic damage.

Ideas for a “clearing house” to boost the interbank lending market, which is at the heart of the financial system, were “potentially applicable”, said Lucas Papademos, vice-president of the European Central Bank.

An ECB-organised clearing house would guarantee lending, with the intention of overcoming mutual distrust between banks. The ECB has cut official eurozone borrowing costs by 175 basis points since early October but is frustrated that market interest rates remain high.

http://www.ft.com/

Additional reading: http://www.ft.com/

15 Dec-08: Markets and Operations: developments in global financial markets

by Bank of England, Quarterly Bulletin - Q4 2008

This article covers a period of exceptional instability in the global financial system. The financial market turmoil intensified in September and October 2008, especially following the failure of Lehman Brothers. Subsequently, a number of other financial firms failed, were rescued by government intervention or merged with other financial institutions. As a result, trading conditions in many markets became very strained. Market liquidity deteriorated as market makers widened spreads between prices at which they were prepared to buy and sell. This contributed to numerous apparent anomalies in market pricing.

http://www.bankofengland.co.uk/

15 Dec-08: Share price says the game is up for Anglo Irish Bank

by the Irish Times

IT IS clear from the share price of Anglo Irish Bank that no one - apart from its board, presumably - believes management when they say they the bad debts in its €73 billion loan book will amount to a manageable €879 million.

http://www.irishtimes.com/

15 Dec-08: Recapitalisation of the banks - Questions remain as endgame begins

by the Irish Times and Bloomberg

THE GOVERNMENT commitment to participate in a €10 billion fund to recapitalise the Irish banking system heralds the beginning of the endgame in a process that will still be fraught with difficulty.

http://www.irishtimes.com/

http://www.bloomberg.com/

15 Dec-08: Book review: Journal of Statistical Software; A First Course in Statistical Programming with R

by W. John Braun and Duncan J. Murdoch, Cambridge University Press, Cambridge, 2007

http://www.cambridge.org/

http://www.jstatsoft.org/

15 Dec-08: How HBOS was lost

by Robert McDowell

http://www.sundayherald.com/

January sales loom for merged HBOS brands: http://www.sundayherald.com/

13 Dec-08: European Council: a historic agreement

by ue2008.fr

Nicolas Sarkozy, the President of the French Republic, presided over the European Council held in Brussels on 11 and 12 December. A historic agreement was reached on climate protection and reducing carbon dioxide emissions. The Council also reached an agreement on the European economic recovery plan, the Lisbon Treaty and the European Security and Defence Policy.

The European Council approved a European economic recovery plan, equivalent to 1.5% of the GDP of the European Union (approximately 200 billion euros). This plan constitutes the common framework for efforts undertaken by the Member States and the European Union to ensure that these efforts are consistent with one another, thereby maximising their effects.

11 Dec-08: Bank of America cuts 30,000 jobs

by BBC

Bank of America has said it plans to cut between 30,000 and 35,000 jobs over three years following the completion of its takeover of Merrill Lynch

http://news.bbc.co.uk/1/hi/business/7778737.stm

11 Dec-08: Barroso backs Irish call for assurances

by RTE

European Commission President José Manuel Barroso believes it is possible to give Ireland legally binding assurances over voter concerns such as abortion and neutrality. Speaking to RTÉ News, Mr Barroso said the topic would be discussed by the heads of government at the EU Council meeting in Brussels.

http://www.rte.ie/news/2008/1211/eulisbon.html

10 Dec-08: Lessons of the financial meltdown: What new rules and architecture?

by Friends of Europe in partnership with the Financial Times

Friends of Europe in partnership with the Financial Times and with the support of APCO Worldwide will today address the issues of the financial crisis in this Café Crossfire debate. It will take place on Wednesday, 10 December at the Bibliothèque Solvay and will start at 12.30. The massive bail-out arrangements agreed by governments of the world’s leading economies may have arrested the free-fall of financial markets and the failure of more banks, but they raise a host of difficult questions. What should be the future shape and scope of financial services, and how should we redefine the relationship between states and private sectors? What prudential rules and conditions can bail-out governments impose without limiting economic recovery, and what mechanisms will be needed to ensure their closer international cooperation?

Featuring amongst others: Joaquín Almunia, EU Commissioner for Economic and Monetary Affairs, Axel Miller, former CEO of Dexia, John Monks, General Secretary, European Trade Union Confederation (ETUC), Poul Nyrup Rasmussen MEP, President, Party of European Socialists (PES), André Sapir, Professor of Economics, European Centre for Advanced Research in Economics and Statistics (ECARES), Université Libre de Bruxelles (ULB). Moderated by Giles Merritt, Secretary General of Friends of Europe and Wolfgang Munchau, Columnist and Associate Editor, Financial Times.

9 Dec-08: Computational Finance with R

by revolution-computing.com

REvolution Computing and the Department of Statistics at Columbia University presented on the 4th of December an informative workshop about using statistical computing with R in finance. The conference brought together both academics and practitioners, and was open to public.

http://www.stat.columbia.edu/pages/ComputationalFinance/

http://www.revolution-computing.com/events/2008/cu08-finance/index.php

8 Dec-08: Lloyds TSB HBOS merger

by Robert Mcdowell

Ninety-six percent of Lloyds shareholders approved the deal at an annual general meeting in Glasgow on the 19 November 2008. HBOS shareholders will vote on the tie-up on 12 December. Independent Thinker but member of the Asymptotix EcoSystem Robert McDowell casts some shadows over the expected merger between Lloyds TSB and HBOS. His basic question is: Is this takeover at fair value & a basis for restoring shareholder value?

Read his independent White Paper here.

http://bankingeconomics.blogspot.com/2008/12/secret-dossier.html

http://bankingeconomics.blogspot.com/2008/12/legal-challenge-to-hbos-merger-decision.html

http://creditcrunchimagery.blogspot.com/2008/12/merger-action-group-v-lloyds-tsb-hbos.html

8 Dec-08: BarCap U-turn sees push for global equities; Old-fashioned equities business prepares for comeback

by Adrian Cox, The Financial Times (Published: 30 Nov-08, 23:55)

Barclays’ move to rebuild a European cash equities business, complete with research analysts, sales people and traders, highlights the attraction of relatively simple businesses after the bursting of a bubble in complex investments that were hard to value and, latterly, impossible to sell. The move is a reversal for BarCap, which sold off most of its BZW stockbroking and investment banking unit in Europe in 1997 in order to concentrate on selling high-end tailored equity products and handling highly automated bulk trading.

http://www.ft.com/cms/s/0/1dab8656-bf0c-11dd-ae63-0000779fd18c.html

http://www.ft.com/cms/s/0/5912d1be-bf01-11dd-ae63-0000779fd18c.html

8 Dec-08: FSA to step up its supervisory role

by Jennifer Hughes, The Financial Times (Published: 30 Nov-08, 22:46)

In an interview with the Financial Times, Hector Sants, chief executive of the Financial Services Authority, said supervisors would need to develop a far better understanding of the institutions they oversaw. Banks will face more “intrusive” oversight from the City watchdog as part of its plans to beef up its role and its staff.

http://www.ft.com/cms/s/0/63c0b9c6-bf2b-11dd-ae63-0000779fd18c.html

http://www.ft.com/cms/s/0/20578236-bf36-11dd-ae63-0000779fd18c.html

2 Dec-08: Meeting of the Economic and Financial Affairs Council (Ecofin)

by ue2008.fr

The December Ecofin Council meeting was devoted to responding to the economic slowdown, preparing the European Council meeting, strengthening financial stability and addressing various tax issues.

ECOFIN Council agreement on four key directives for financial stability: the strengthening of bank deposit guarantee systems; the increase of banking capital requirements; the overhaul of the regulatory framework of UCITS (Undertakings for Collective Investment in Transferable Securities); the continuing integration of insurance activities. With this agreement, the French Presidency has met its ambitious legislative targets designed to bolster the solidity and stability of the European financial system.

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