FINANCIALINDUSTRYSTRUCTURE.pptVIP

* * * * * * * * * * * * * CEIC Data no longer available * Credit performance worse at sub-prime lenders. Mortgage losses estimated at $1.4 trilion by IMF Liquidity of CMO’s and CDO’s There is much uncertainty and asymmetric info in CMO’s. Difficult for a potential investor to evaluate quality of the mortgage loan bundle while bundler/seller may have better idea. Increased risk has generated lemon’s problem. Wide bid/ask spreads makes it difficult to reasonably implement M2M accounting. Issues Capitalization: Banks and other holders of mortgage backed securities are likely to take large losses on defaults. Liquidity: MMMF are supposed to be safe investments; once risk becomes known MMMF‘s pull out of commercial paper market go into treasuries. Complexity: CDO’s and CMO’s are complicated instruments; difficult to tell good from bad. In hard times, adverse selection may make selling them w/o huge discount problematic. Business cycle issue. Large contraction in consumption and investment likely to make default rates rise. Shadow Banking and Asia FSB uses OFI’s (non-bank financial institutions less insurance, pension funds public institutions) as indicator of shadow banking (Unit Trusts/Mutual Funds, Finance Companies, Credit Unions, Brokerage Companies, Structured Finance). Shadow banking in Asia generally: Small relative to banking sector but growing Mostly not financed through financial markets. Mostly finances simple loans or vanilla securities. FSB Shadow Banking in Asia IMF Global Financial Stability Report Chinese Banking System Major Commercial Bank (BoC, ICBC, CCB, ABC) Joint-Stock Commercial Bank (CITIC Industrial Bank, Bank of Communications, Everbright) City Commercial Bank (Bank of Shanghai, Bank of Beijing, Bank of Tianjian) Credit Cooperatives (Collective Banks – Urban and Rural) Policy Banks (Export Import Bank, China Development Bank) Trust Companies CBRC Chinese Trust Companies China has heavily regulated deposit rates. Rich people seek highe