Friday 23 March 2012

Instantaneous Symmetric Risk <=> Dodd Frank Avoidance Scheme

I guess you could make a lot of money helping non-US banks avoid Dodd-Frank Act requirements. See: http://online.wsj.com/article/SB10001424052702303812904577295614224666918.html
Deutsche Bank has always been rather "leveraged" and some estimates say it would have had to come up with between $20 to $40 billion in capital. Instead it gave up its bank holding status so it won't have any FDIC protection. But Title II Orderly Liquidation Authority will be used to liquidate any bank or non-bank posing a systemic risk to the US economy. So the interesting irony here is that by dropping its BHC status and thus lacking federal insurance, hasn't it become instantaneously a danger to the US economy and thus, a target for liquidation? Actually, if I were a benevolent dictator, I'd extract a bit more "taxable value" from Deutsche Bank for making such an obvious avoidance scheme and hold the threat of Title II over its head. Hmm. I doubt severely that the US Fed or the Treasury will consider this argument, but given the powers entrusted them under Title II of the Dodd-Frank Act, they should.

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