Archive for the ‘Banking’ Category

Are our models too complex?

June 17, 2012

Gillian Tett is a well-respected writer for the Financial Times and frequently picks up the topic of complexity in financial markets.

In a recent article (see here) she makes a case that the era of number crunching is over, and that the world of investments is back again firmly in the domain of human relationships and evaluations.

Once upon a time we would measure credit risk with a numbers like survival probability stripped from CDS market prices. Once upon a time we were all happy to value a transaction with models that almost no-one other than the quants understood.

Her view is that these times are gone.

How do banks work?

May 9, 2012

Nathan Lewis runs a blog called New World Economics, and back in 2008 he wrote a series of 7 articles which do a very good job of explaining how a bank works.

It is well worth a read.

Click here to see the series.

Note that it was written in early 2008, which was about the time when the FED started aggressively cutting their target rate, and strains had already begun to show in the banking sector.

During the boom years, the FED rate had increased steadily from its low of 1% in mid 2004 up to reach 5.25% by early 2006 where it remained until September 2007. Then the FED began a rapid sequence of cuts which had brought the rate down to 3% by Jan 2008, ending the year at 0.25% where it has remained until today.

Just so you know, like.