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Jerome: It does not cost nothing [to create the principal of a loan] Nowadays, with regulatory oversight, it requires a capital allocation (8% or less, depending on the risk)."

Chris: Note that the whole business of "credit derivatives" is to all intents and purpose Banks outsourcing their "Guarantee".

Does this mean that "credit derivatives" allow banks to get around the "8% capital allocation" imposed by regulatory oversight?

Also, what regulatory oversight are we talking about? Basel II?

Bush is a symptom, not the disease.

by Migeru (migeru at eurotrib dot com) on Fri May 11th, 2007 at 11:32:11 AM EST
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