JohannesBorgen Profile picture
Sep 21, 2020 6 tweets 1 min read Read on X
I've barely seen any reporting on it but there was an extremely important hearing at the ECJ today on the application of the working time directive to the Army. Believe it or not this could have substantial implications...even on.... QE and the ECB's asset purchases! How so ?
I hope you're intrigued!
Because France is one of the countries arguing that the WTD does not apply. And one argument made is that the free organisation of the army is a core constitutional principle; I.e. one that would even trump the EU treaty (whatever the ECJ's view)
So that could lead to further constitutional fights between member states and the ECJ, but not on any constitutional issue, only on core constitutional principles.
Which of course remain a largely undefined term and subject to case by case basis
So going back to the ECB's purchase programs, if this case escalates to a fight between French's supreme courts and the ECJ it could change the balance of power on constitutional law...something the BvG will surely watch closely !
The bottom line is this : if you think EU treaty > Constitution, remember that it's actually much more complicated than that

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More from @jeuasommenulle

Jul 2
France is famous for wine, cheese, Versailles, football… and credit ratings.

Today I’m going to tell you how French banks will save billions of capital thanks to an old institution & a magic trick

Read till the end, it’s the wonderful story of a ruling worths tens of billions
Let’s go back to Deutsche Banks’ recent disclosure that Basel 4 will cost them 15bn of capital (with 13% CET1r assumption).

See linked thread:

It all boils down to the fact that under Basel 4 banks will have to calculate their risk exposures using the max of

i) their internal models’ calculations and

ii) 72.5% of the “Standard” (=supervisory) models, also called the output floor.
Read 16 tweets
Jun 30
Why is Deutsche stock hammered today?

An old theme is coming back to haunt them: Basel 4!

Quick thread. Image
After almost 10y of discussion the package was finally enacted with full implementation in 2033.

Everyone felt, after many EBA reports & banks' disclosures, that impact would be mild.

But for first time banks are publishing capital ratios w/ the new rules and for DB it's ugly
How does it work? Banks are still allowed to use internal models, but the RWA (in 2030/2033) must be at least 72.5% of the standard (non internal models) RWA. ("output floors") and for DB that's a 33% increase!
CET1r would go from 13.8% to 10.35%! Ouch! Image
Read 4 tweets
Jun 23
Why is the latest EC proposal on securitization a big deal for banks and how does it change the SRT market?

A slightly geeky thread - with some backround on the SRT market if you're not aware of this important market.
First what’s a SRT?

Following secular finance practice of reinventing the wheel but changing its name, the new trendy capital optimization transactions are “significant risk transfers”, but they’re just good old securitizations (invented in the 1860s 😊.)

(cash or synthetic) Image
The reason they’re now called SRT is a regulatory one.

The 2013 CRR (Art 244/245) allowed banks to get capital relief under some conditions, essentially that “significant risk” was transferred to someone else.
Read 15 tweets
May 23
Are you readyyyyy for LDI take 2?

Hear me out. Something’s brewing in the UK Gilt market.

#LettuceLiz Image
As the chart above shows, the cash swap spread has moved significantly & one-way recently.

Spread to swap is now 50bps.

But EU & UK insurers book their liabilities at NPV using swap curves, not UKT curves.

Still with me ?
This means that Gilts have become an excellent investment for life insurers.

The CSM for new business is going down (but still positive) but the charge for credit is now 0 so ROE increase significantly.

So far so good.
Read 7 tweets
Apr 8
Bloomberg has some nice charts on the tariffs’ impacts.

The first one argues that tariffs on China are coming globally: too many countries will see a spike of imports from China & that's not sustainable. Image
The second shows GDP impacts, taking into account direct effects + indirect via trade partners (using a WTO macro model, so, you know...)

SE Asia impact is massive, -1% for EU, -1.3% Japan and -2.5% Korea. Mexico bonanza. Image
Some details on who’s going to stop which exports – very interesting split (especially if you try to model loan losses 😊). Overall 30% drop in US imports of goods (with retaliation modelled as 50% of US). China is -85%, Vietnam -75%, Taiwan, Japan, Korea Thailand -50%, EU -40%. Image
Read 4 tweets
Mar 5
A week ago the Swiss gvt bravely decided to leave the decision on UBS capital requirement to Parliament.

I’m not sure that was such a great idea – as the recent proposal of the Swiss Social-Democratic Party shows.

If implemented, it would be a massive game changer. A thread.
First, a reminder: the SDP is not a fringe party, they’re #2 in the National council (41/200) & #3 in Council of States (9/46) & they’re also not particularly extreme (I mean, Swiss rarely are.)

But their proposals for UBS are a bit wild.

Let’s unpack.
1) A new leverage ratio surcharge of 3% for assets >300bn$ - in practice it means 40bn$ more capital required (out of approx 85bn of equity).

Ouch.

And having the biggest req on a non-risk adjusted basis is not exactly a very safe approach imho
Read 12 tweets

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