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Jesper Berg - 2009

Reflections by an economist on the lessons from the crisis for capital adequacy and accounting principles. Jesper Berg - 2009.

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Jesper Berg - 2009

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  1. Reflections by an economist on the lessons from the crisis for capital adequacy and accounting principles Jesper Berg - 2009

  2. ” Now Joseph was thirty years old when he came before Pharaoh, king of Egypt. And Joseph went out from before the face of Pharaoh and went through all the land of Egypt. Now in the seven good years the earth gave fruit in masses. And Joseph got together all the food of those seven years, and made a store of food in the towns: the produce of the fields round every town was stored up in the town. So he got together a store of grain like the sand of the sea; so great a store that after a time he gave up measuring it, for it might not be measured..” Source: Old Testament Gênesis 41. 1. A buffer for bad years

  3. Turner and de Larosiere From Modigliani and Miller and onwards Four lessons to be remembered Procyclicality, liquidity and the liability side 2. Outline

  4. Capital requirements up Shift relative taxation Assets at mark-to-market/Fair value Liabilities at Max (Nominal value, mark-to-market) Alternative valuations in notes Transparent cyclical buffers Tightening implemented in years of plenty 3. Policy messages

  5. 4. Turner and de Larosiere

  6. ”Yes and no” Source: M. Miller, J. of Banking and Finance, 1995. 5. Do the MM-Proposition apply to banks

  7. Selected items from failed banks, mill. kr. Source: Finansiel Stabilitet 6. The difference between going and gone

  8. 7. Years of plenty and years of famine

  9. 8. SIV and conduits or the danger of a liquidity guarantee Assets Liabilities Assets Liabilities ABCP Shares Home loans ABCP Money Market Mutual Fund ABCP SIV/Conduit Liquidity guaranty (non-balance sheet) OK! Ratings Agency Bank OK!

  10. 9. The game is skewed

  11. People and governments have never learned anything from history, or acted on principles deduced from it . 10. The ostrich strategy Source: Hegel, as quoted in "History of the 80s, vol. I, An examination of the banking crisis of the 1980s and early 1990s", Federal Deposit Insurance Corporation, 1997.

  12. 11. Procyclicality, liquidity and the liability side ”The large bike blade”. Source: Expressions used when Bjarne Riis during the Tour de France in 1996 gave his competitors rear by running a high gear up the hill. Bjarne Riis has subsequently indicated that he was drugged.

  13. Capital requirements up Shift relative taxation Assets at mark-to-market/Fair value Liabilities at Max (Nominal value, mark-to-market) Alternative valuations in notes Transparent cyclical buffers Tightening implemented in years of plenty 12. Policy messages

  14. 13. Concluding observation To understand the world is like peeling an onion. Each time, removing a layer, you discover a new layer and occasionally you weep. Source: An analyst philosophy of life.

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