Yesterday was the anniversary of the Lehman Brothers collapse and we're still waiting for the issues to be dealt with
nouriel roubini's rge monitor details the amount of financial institution crap that, apparently, is still crying out to be dealt with, one full year after the lehman brothers collapse...
What's Still the Same?sigh... Submit To Propeller
- Too big to fail banks are now even bigger and leverage has increased across the board. With the incorporation of insolvent competitors and the forced re-intermediation of formerly off-balance sheet vehicles, the leverage ratio of global banks has jumped to around 40-50 in the U.S., Europe, and the UK in 2008, according to InvestorsInsight. In 2010, up to US$900 billion of remaining off-balance sheet vehicles will have to be consolidated.
- While systemic banks benefit from implicit and explicit government backstops, a resolution regime for all systemically large and complex institutions like Fannie and Freddie, for example--arguably one of the most important measures-- is stalling in Congress amid waning political support. Moreover, there is strong lobbying against the Consumer Protection Agency, whose fate is unclear. It is not decided yet who will be the systemic risk regulator: the Fed or the Systemic Risk Council.
- The lack of any disciplining mechanism represents an incentive for large players to engage in risky trading activities with value-at-risk (VaR) measures back at record levels in Q2 2009 for the top five banks, with US$1.04 billion at risk to be lost at any given trading day, according to press reports.
- The TARP Oversight Panel mentioned in its August 2009 report that toxic assets are still on banks' books. They are likely to be found in the Level 3 accounting category (mark-to-model) due to valuation difficulties. As of Q1 2009, the large banks have US$657 billion of Level 3 assets on their books.
- Commercial Real Estate (CRE) Risk: Fitch reports that "while CRE loans, excluding the more problematic construction and development portfolios, represent more than 125% of total equity for the 20 largest banks rated by Fitch, the risk is even higher for banks with less than $20 billion in assets, as average CRE exposure represents more than 200% of total equity for these institutions." Fitch also announces ratings review by September.
- Dependence on wholesale funding markets is likely to remain an issue. The financing shortfall from the lack of securitization left a funding hole of about US$2 trillion and the market is still damaged from an overhang in legacy assets.