24 Jun 2011

Cost of Capital for Banks

This paper from a Stanford professor is a great statement of why changing the debt/equity mix does not need to imply higher “costs”: read more »

17 Nov 2010

“Search and matching” theories by Dr Alex Pilato

The lack of competition increases funding and hedging costs for borrowers, which in turn has a direct negative effect on economic growth. The ‘product bundling’ approach used by banks to reduce competition also has the effect of reducing risk and return (i.e. price) transparency on lending and OTC derivatives, which in turn restricts the efficiency read more »

17 Nov 2010

Marking-to-market banks by Dr Alex Pilato

When only part of a balance sheet is marked-to-market and the other is not, not only an entity (bank or corporate or pension fund) will have two fundamentally different and incompatible risk measures, but it will also create a gigantic liquidity exposure. Any market disturbance could result in financial failure even though the entity could read more »