Upload File

1 lessons from the sub-prime crisis kevin davis commonwealth bank chair of finance, university of...

  • Home
  • Documents
  • 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial
32
1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial Studies www.melbournecentre.com.au [email protected] November 2008

Post on 21-Dec-2015

214 views

Category:

Documents


0 download

Report

Tags:

TRANSCRIPT

Page 1: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

1

Lessons from the sub-prime crisis

Kevin Davis

Commonwealth Bank Chair of Finance, University of Melbourne

Director, The Melbourne Centre for Financial Studies

www.melbournecentre.com.au

[email protected]

November 2008

Page 2: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

2

Outline

• Origins of the Crisis• Features of the Crisis• Regulatory Responses• Future Regulatory Responses

Page 3: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

3

Origins of the Crisis

• Financial engineering and financial products• Liquidity creation and leverage• “Shadow banking” & risk sharing and

spreading• Inadequate public information

Page 4: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

4

An Increasingly Complex Financial System

CentralBank

Banks & ADIs

InvestmentBanks

ManagedFunds

HedgeFunds

Pension Funds

FinanceCos.

InsuranceCos.

PrivateEquity

CashCash

CDO’sCDO’s

RMBSRMBS

CFDsCFDs

FuturesFutures

SwapsSwapsOptions

Options

Warrants

Warrants

ABCPABCP

Conduits

ConduitsSIV’sSIV’s

Debentures

Debentures

IndexedIndexedFundsFunds

Margin

MarginLoans

Loans

ShortShortSellingSelling

SecuritiesSecuritiesLendingLending Reverse

ReverseReposRepos

ReposReposDepositsDeposits

FXFX

BondsBonds

SharesShares

LoansLoans

Page 5: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

5

Origins of the Crisis

• Financial engineering and financial products• Liquidity creation and leverage• “Shadow banking” & risk sharing and

spreading• Inadequate public information

Page 6: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

6

Page 7: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

7

Easy Credit – An ExampleLarge Business Credit Spreads - Australia

0

0.5

1

1.5

2

2.5

3

Sep-98

Sep-99

Sep-00

Sep-01

Sep-02

Sep-03

Sep-04

Sep-05

Sep-06

Sep-07

Quarter

%

Spread over 30 day bank bill rate

Source: RBA

Page 8: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

8

Origins of the Crisis

• Financial engineering and financial products• Liquidity creation and leverage• “Shadow banking” & risk sharing and

spreading• Inadequate public information

Page 9: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

9

An Interdependent Financial System

CentralBank

Banks & ADIs

InvestmentBanks

ManagedFunds

HedgeFunds

Pension Funds

FinanceCos.

InsuranceCos.

PrivateEquity

CashCash

CDO’sCDO’s

RMBSRMBS

CFDsCFDs

FuturesFutures

SwapsSwapsOptions

Options

Warrants

Warrants

ABCPABCP

Conduits

ConduitsSIV’sSIV’s

Debentures

Debentures

IndexedIndexedFundsFunds

Margin

MarginLoans

Loans

ShortShortSellingSelling

SecuritiesSecuritiesLendingLending Reverse

ReverseReposRepos

ReposReposDepositsDeposits

FXFX

BondsBonds

SharesShares

LoansLoans

Page 10: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

10

Origins of the Crisis

• Financial engineering and financial products• Liquidity creation and leverage• “Shadow banking” & risk sharing and

spreading• Inadequate public information

Page 11: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

11

Public Information

Page 12: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

12

A simple explanation

Ian Ramsay April 1, 2008 http://business.theage.com.au/opes-prime-who-understood/20080331-22qf.html

Illustration: Michael Leunig

Page 13: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

13

Features of the Crisis

• Consumer sophistication• Incentive structures• Outsourcing due diligence• Regulatory avoidance• Inadequate risk management systems• Excessive liquidity creation

Page 14: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

14

Features of the Crisis

• “Shadow banking sector” importance• Deposit insurance inadequacy• “Freezing” of funding and asset liquidity• Liquidity support facility arrangements• Inadequacy of risk based capital• Globalization issues• “Flight to quality” issues

Page 15: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

15

Regulatory Responses

• Protection of national banking systems• Liquidity Creation/restoration• Bail Outs• Temporary regulations

Page 16: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

16

Regulatory Responses

• Protection of national banking systems• Liquidity Creation/restoration• Bail Outs• Temporary regulations

Page 17: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

17

The Flight to Quality Effect

CentralBank

Banks & ADIs

InvestmentBanks

ManagedFunds

HedgeFunds

Pension Funds

FinanceCos.

InsuranceCos.

PrivateEquity

CashCash

CDO’sCDO’s

RMBSRMBS

CFDsCFDs

FuturesFutures

SwapsSwapsOptions

Options

Warrants

Warrants

ABCPABCP

Conduits

ConduitsSIV’sSIV’s

Debentures

Debentures

IndexedIndexedFundsFunds

Margin

MarginLoans

Loans

ShortShortSellingSelling

SecuritiesSecuritiesLendingLending Reverse

ReverseReposRepos

ReposReposDepositsDeposits

FXFX

BondsBonds

SharesShares

LoansLoans

Page 18: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

18

Regulatory Responses

• Protection of national banking systems• Liquidity Creation/restoration• Bail Outs• Temporary regulations

Page 19: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

19

Socializing the losses

Page 20: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

20

Regulatory Responses

• Protection of national banking systems• Liquidity Creation/restoration• Bail Outs• Temporary regulations

Page 21: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

21

Page 22: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

22

Page 23: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

23

Page 24: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

24

A Fragile Financial System?

CentralBank

Banks & ADIs

InvestmentBanks

ManagedFunds

HedgeFunds

Pension Funds

FinanceCos.

InsuranceCos.

PrivateEquity

CashCash

CDO’sCDO’s

RMBSRMBS

CFDsCFDs

FuturesFutures

SwapsSwapsOptions

Options

Warrants

Warrants

ABCPABCP

Conduits

ConduitsSIV’sSIV’s

Debentures

Debentures

IndexedIndexedFundsFunds

Margin

MarginLoans

Loans

ShortShortSellingSelling

SecuritiesSecuritiesLendingLending Reverse

ReverseReposRepos

ReposReposDepositsDeposits

FXFX

BondsBonds

SharesShares

LoansLoans

Page 25: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

25

Banking Crises: 1980-96

Page 26: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

26

Financial Crises since 1996

• Asian crisis 1997• Russian crisis 1998 (& Long Term Capital

Management)• Brazil 1999• DotCom Bubble 2000• Argentina 2001• “since the collapse of Argentina in 2001, the international financial

system has been an oasis of stability. Some believe this is merely good luck, and that the bad old days will return. They are wrong.” Andrew K. Rose 31 May 2007 CEPR Policy Insight No. 1, June 2007

• http://www.voxeu.org/index.php?q=node/199• Subprime Crisis – June 2007 - ??

Page 27: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

27

Future Regulatory Issues

• Central Bank targets• Macro-prudential policy• Mark-to-market accounting• Deposit Insurance• “Too big/important to fail”• Automatic recapitalization stabilizers

Page 28: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

28

Future Regulatory Issues

• Basel II• Domain of Prudential Regulation• Reporting and Information Requirements• Promoting organized exchanges• Transactions taxes and volatility

Page 29: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

29

Future Regulatory Issues

• Governance and agency problems• Financial consumer protection• Securitization structures• Financial sector concentration

Page 30: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

30

Conclusion

• Was it inevitable – probably!• Who’s to blame – enough for all to share!

Page 31: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

31

Page 32: 1 Lessons from the sub-prime crisis Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for Financial

32

Conclusion

• Was it inevitable – probably!• Who’s to blame – enough for all to share!• Will a depression result – probably not!• Will similar financial crises recur – probably!• Will the financial system be restructured

– Needs to be, but vested interests are strong!


State Immunity from Commonwealth Laws: Austin … · STATE IMMUNITY FROM COMMONWEALTH LAWS nevcrtheless produce the effcct which it is the objcct of the [Melbourne Corpomtiorz] principle

Karen Davis President, The Commonwealth Fund Alliance for Health Reform Briefing April 27, 2009

THE COMMONWEALTH FUND Karen Davis President, The Commonwealth Fund January 27, 2006 [email protected] Health Savings Accounts

The COMMONWEALTH FUND › sites › default › ...The COMMONWEALTH FUND Karen Davis, Cathy Schoen, and Farhan Bandeali April 2015 MEDICARE 50 Years of Ensuring Coverage and Care This

Commonwealth of Australia Gazette No. A045/12, …Investment Commission, GPO Box 9827, Melbourne Vic 3001 = Commonwealth of Australia Gazette No. A045/12, Friday, 25 May 2012 Published

Commonwealth Games Gender Equality Report · Commonwealth Games: Kuala Lumpur, Malaysia (1998), Manchester, England (2002), Melbourne, Australia (2006), and Delhi, India (2010). At

Commonwealth Medicine SPECIFYING THE …...Commonwealth Medicine SPECIFYING THE MARYLAND MODEL OF SERVICE FOR TRANSITION-AGE YOUTH & YOUNG ADULTS Mason Haber & Maryann Davis, University

1 August 2005 Credit Union Demutualization Kevin Davis Commonwealth Bank Group Chair of Finance Director, Melbourne Centre for Financial Studies Chairman,

EVENT STRATEGY SUPPORT SERVICES...Games • Melbourne 2006 Commonwealth Games • Beijing 2008 Olympic Games • Australian Paralympic Youth Games 2009 • Delhi 2010 Commonwealth

Bringing it all together Melbourne 2006 Commonwealth Games Education Program Teacher Professional Development Program

Melbourne International Film Festival Graeme Mason ......37 South – Melbourne International Film Festival Screen Australia | 3 novel, taken to new places by Margaret Fink, Judy Davis

THE COMMONWEALTH FUND Presidential Candidates Health Care Plans: A First Look Karen Davis President, The Commonwealth Fund National Press Foundation November

Professor Glyn Davis Vice-Chancellor The University of Melbourne

Melbourne 2006 Commonwealth Games Mr John Harnden Chief Executive

Perinatal asphyxia: Pathophysiology and therapyipokrates.info/wp-content/uploads/Davis-Cooling.pdf · Perinatal asphyxia: Pathophysiology and therapy Peter Davis Melbourne Australia

Karen Davis President The Commonwealth Fund kd@cmwf Invited Testimony

Is it “Bad” to be a “Good” Investor? Kevin Davis Commonwealth Bank Chair of Finance Director, Melbourne Centre for Financial Studies

Commonwealth of Australia ASIC Gazettedownload.asic.gov.au/media/2252340/a51_14.pdf · Investment Commission, GPO Box 9827, Melbourne Vic 3001 . ASIC GAZETTE Commonwealth of Australia

THE COMMONWEALTH FUND Why Not the Best? How States Can Lead Us Toward a High Performance Health System Karen Davis President, The Commonwealth Fund National

THE COMMONWEALTH FUND Karen Davis President, The Commonwealth Fund American Hospital Association Roger Larson Memorial Lecture May 2, 2006 [email protected]

LAST NIGHT OF THE PROMS Melbourne Symphony Orchestra Sir Andrew Davis conductorMeasha Brueggergosman soprano David Jones drum kit Melbourne Symphony Orchestra Chorus Warren Trevelyan-Jones

1 Financial Regulation after the GFC Kevin Davis Professor of Finance, University of Melbourne Research Director, Melbourne Centre for Financial Studies

COMMONWEALTH LAW CONFERENCE Melbourne, Victoria 23 … · 2020. 1. 29. · COMMONWEALTH LAW CONFERENCE Melbourne, Victoria 23 March 2017 CONFLICT BETWEEN INDIGENOUS PEOPLE AND THE

THE COMMONWEALTH FUND Karen Davis President, The Commonwealth Fund Centre for Health Services and Policy Research Conference March 4, 2008 [email protected]

THE COMMONWEALTH FUND Karen Davis President, The Commonwealth Fund National Association of Community Health Centers Plenary Address March 27, 2006 [email protected]

COMMONWEALTH GAMES E VALUATION REPORT...Games 5 Background The 2006 Commonwealth Games 23. In March 2006, Melbourne hosted over 90,000 international visitors, 4,500 athletes and 3,500

THE UNIVERSITY OF MELBOURNE STRATEGIC PLAN … · The University of Melbourne will provide current and ... Glyn Davis Vice-Chancellor ... princeps Aeolium carmen ad Italos deduxisse

MRUFC Newsletter 152010 - Melbourne Rugbysecure.melbournerugby.com.au/sites/default/files/152010.pdfU12 State Rep Player – Tim Davis Congratulations to Tim Davis who has been selected

THE COMMONWEALTH FUND Choice: When Does It Lead to Higher Customer Satisfaction? Karen Davis President, The Commonwealth Fund World Congress Leadership

The Truth about Mobile Phone and Wireless Radiationehtrust.org/wp-content/uploads/2015/12/Dr-Devra-Davis-Melb-Uni... · Co-sponsored by the Melbourne School of Engineering, the Melbourne

High flow nasal cannulae: Evidence base in preterm infants Peter Davis Melbourne Australia

Sir Andrew Davis conducts Mahler 5 ARTISTS Melbourne Symphony Orchestra Sir Andrew Davis conductor Pierre-Laurent Aimard piano REPERTOIRE Ravel Piano Concerto for the Left Hand —

Geraldine Davis, SENSIS - National Green Brands Forum, 17th June 2010, Melbourne

1 Current Financial and Economic Challenges Kevin Davis Commonwealth Bank Chair of Finance, University of Melbourne Director, The Melbourne Centre for

Karen Davis President, The Commonwealth Fund Centre for Health Services and Policy