Good series to read on Market Liquidity

Introduction to a Series on Market Liquidity.

Bail In - Total loss-absorbing capital (TLAC)

In November 2014, Financial Stability Board proposed a minimum total loss absorbing capacity requirement ,TLAC,to make sure that world's 30 most systemically important banks (G-Sibs), BCBS defined these banks as Too big to fails, can be stabilised and shut down in orderly way with out taxpayer bailouts. The TLAC rule would require banks to issue ordinary shares, subordinated debt and other potentially loss-absorbing securities equivalent to as much as 15-20% of their assets weights for risks. 

Basel III rules require banks to meet a minimum total capital ratio of 10.5% by 2019 – though in some jurisdictions the minimum ratio is far higher. The proposed minimum TLAC requirements for G-Sibs unveiled at the G20 Brisbane summit in November 2014 is 16% to 20% of a group's consolidated risk-weighted assets. This proposal was under consultation until February 2, 2015, when the requirement was finalised.The TLAC rule is set to take effect in 2019 at the earliest.

This the concept of 'bail in' spearheaded during the Lehman's collapse. Wilson Ervin, now credit suisse's vice chairman, explains how his Lehman experience led to the creation of bail-in, and describes some of the innovations by the Swiss regulators.

Initially FSB excluded all structured notes/securities from the TALT requirement,  now structured notes are being considered to the extent that the repayment of the principal at maturity is unconditional and not contingent on any derivative-linked feature, reported by Bloomberg. 

COCO bonds raised by many banks can be considered as bail-in type securities. Regulators needs to increase the oversight on COCO bonds as risk profile of these bonds are complex as suggested by FT.

Swiss regulators pushed for 5% leverage ratio for TBTF banks

• As per Bloomberg, Swiss regulators will require that country's biggest banks to have capital of 5% of total assets - this will be in line with the rule for U.S. too-big-to-fail lenders, and significantly above the 3% minimum set by Basel.

• UBS and Credit Suisse have argued the Swiss financial system isn't comparable to the U.S. with its far deeper capital markets.

• Leverage ratios have gained favor among regulators as the most effective way to evaluate a bank’s robustness because the method doesn’t involve estimates of risks on their activities.

• Switzerland imposed some the world’s strictest too-big-to-fail requirements in 2011 after the government came to UBS’s rescue during the 2008 financial crisis. UBS and Credit Suisse have assets of 1.83 trillion francs combined, about three times the size of the Swiss gross domestic product, making the two banking behemoths a disproportionately bigger danger to their country’s economy if they fail than their peers elsewhere. Both are compliant with all Swiss capital rules.

Big Banks Agree to Settle Swaps Lawsuit, JP Morgan to pay most in $1.86bn settlement

JPMorgan Chase will pay almost a third of a $1.86B settlement to resolve accusations that a dozen big banks conspired to limit competition in the credit default swaps market, WSJ reports.

JPM reportedly will pay $595M, followed by Morgan Stanley  with $230M, Barclays at $175M, Goldman Sachs  at $164M, Credit Suisse at $160M and Deutsche Bank at $120M; BofA, BNP Paribas, UBS, Citigroup , Royal Bank of Scotland  and HSBC would pay less than $100M each.

The lawsuit brought by a group of investors accused the banks, the International Swaps and Derivatives Association and data provider Markit Group Ltd. of colluding to block competing providers, including exchanges, from entering the market for derivatives called credit-default swaps.The deal would avert a trial and end years of litigation by hedge funds, pension funds, university endowments, small banks and other investors, who sued as a group.

How Tom Hayes Rigged Libor, good story on how scam was unfolded

A fantastically written story on how Libor was manipulated and how the scam was unfolded.

[Bloomberg]