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How the U.S. Saved Europe's Banking System
Paul Kedrosky submits: Good description in a recent CEPS report of how the U.S., via its AIG bailout, temporarily saved the over-leveraged European banking system. But the AIG case shows the importance of another link across financial markets, namely massive regulatory arbitrage. The K-10 annex of AIG’s last annual report reveals that AIG had written coverage for over US$ 300 billion of credit insurance for European banks. The comment by AIG itself on these positions is: “…. for the purpose of providing them with regulatory capital relief rather than risk mitigation in exchange for a minimum guaranteed fee”. AIG thus helped to organise regulatory arbitrage on a gigantic scale. A formal default of AIG would have had a devastating impact on banks in Europe. This explains why AIG’s problems had
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How the U.S. Saved Europe's Banking System
Paul Kedrosky submits: Good description in a recent CEPS report of how the U.S., via its AIG bailout, temporarily saved the over-leveraged European banking system. But the AIG case shows the importance of another link across financial markets, namely massive regulatory arbitrage. The K-10 annex of AIG’s last annual report reveals that AIG had written coverage for over US$ 300 billion of credit insurance for European banks. The comment by AIG itself on these positions is: “…. for the purpose of providing them with regulatory capital relief rather than risk mitigation in exchange for a minimum guaranteed fee”. AIG thus helped to organise regulatory arbitrage on a gigantic scale. A formal default of AIG would have had a devastating impact on banks in Europe. This explains why AIG’s problems had
If you would like to opt-out of receiving email forwards from this person please click here to remove your email address.