Driving Banks Out Of Complex Securities
Central banks are sick of big banks losing money by putting cash into instruments which are poorly understood and financially dangerous. So, why not may it extremely expensive to buy them?
According to the FT, “International regulators and supervisors have started drawing up plans to make it far more expensive for investment banks to hold large volumes of complex financial instruments, such as mortgage-linked securities, in their trading books.” Banks would have an economic penalty for holding this paper and not circulating it by selling it to other companies. Then, those firms could take the losses.
It is very heavy-handed, but it might work.
Douglas A. McIntyre