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August 26, 2008 – Comments (2)

These reports just make me all the more bearish...

 

http://www4.fdic.gov/qbp/2008jun/qbp.pdf 

2 Comments – Post Your Own

#1) On August 26, 2008 at 7:57 PM, anchak (99.90) wrote:

Thanks for the link.....

Other than the obvious numbers on performance dynamics....one thing that stands out ( to me atleast - also obvious because I was looking for it) - is the 40% YoY increase in FHLB advances - I just wonder when this gravy train will be coming to a halt.

Infact, this was the very first topic I blogged on in CAPS, back in May.  Essentially, most smaller banks  ( and a few big ones in trouble) are becoming solely dependent on the FHLB system for funding ( this keeps things under the radar - without say having to borrow from the Discount window). Surprisingly, since FHLB also markets them out into securities - there has not been any hoopla about their asset quality - honestly, I think they may be a little better than Fannie/Freddie - especially since most banks shied away from doing exotic mortgages starting mid 2007 - and that's primarily what's going thru FHLB hands. But this piece is truly opaque - because FHLB do not disclose too much about their securitized debt performance details or their composition 

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#2) On August 26, 2008 at 9:30 PM, anchak (99.90) wrote:

At least 1 good thing ( relatively small) out of this....especially since I have seen dwot express concern over this many times.... is the outstanding amount of derivative contracts ( which is $183 TN as per this) and risk it poses ( Of course this is US only) - However, my observations

(1) Most of these about ($164 TN) is in Interest Rate and Forex - may not be a comforting thought - but aggregate volatility is minimal - essentially you can have rogue trader stories - but typically little systemic risk

(2) $15.4 TN in Credit Derivatives - ie CDS variety. This is the total risk exposure being insured thru this market - its high, however in a swap agreement you pay out the NET ( ie delta) - and so its more important to look at the Fair Value of the outstanding contracts

Thats

(1) $399 BN as net beneficiary vs $429 BN as gurantor. Ie there's about a $30 BN spread/imbalance. If there are skews - which is being debated vs Fannie/Freddie - if some smartypants took a bet on them not ever defaulting ( Remember, even if the stocks go to zero , this will not trigger the default swap - that would happen only on potential default on debt. So I think the problem would be against mezzanine/subordinated)  

Nonetheless the overall industry imbalance seems not be in $trillions. Also the net fair value has decreased from Q1 2008 to Q2 2008, which also is interesting. 

 

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