The banks wrote more loans than they can legally hold. Watch for more legislation in their favor and lobbing on this subject.
New banking regulations require large financial institutions to hold enough “easy-to-sell assets,” in order to survive an economic crisis.
Now, the big banks are uncertain whether or not their $1.1 trillion of aggregated mortgage debt qualifies as this type of asset, according to an article in Bloomberg.
The headline of the article states, that as a result, the new banking regulations leave the largest financial institutions “guessing” about what counts as liquidity and what does not:
Left unclear was whether some or all of a type of bonds known as agency collateralized mortgage obligations can count toward the liquidity coverage ratio approved this week by U.S. banking regulators.
The government-backed debt, which isn’t explicitly mentioned in the rule, represents a big part of bank holdings. Wall Street banks create the investments by bundling existing bonds into notes with varying risks, meaning they help support the broader mortgage-backed securities market that funds and…
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