It Figures

PPIF: A Step in the Right Direction - But Not a Cure-All

A possible problem I see is the regulators forcing the banks to accept better but still uneconomic bids for their assets. Using the BNY-Mellon example, suppose they get a bid reflecting a $1 billion discount - above carrying value (-$1.6 bil) but still below the bank's estimate of hold-to maturity economic value(-$535 mil). It is not beyond imagination to see the feds "suggest" they take the bid, thereby enhancing the "optics" of the balance sheet/capital structure but in fact destroying the economics.

Bair mentioned the other day that such desicions would be made "in consultation" with regulators. Being that bank and regulator objectives and motivations differ significantly, and that the regulators hold all the power in the relationship at the moment(via the "stress test"), this could be a bad thing for banks seen to be vulnerable - whether they actually are or not.