Check GMAT Club Decision Tracker for the Latest School Decision Releases https://gmatclub.com/AppTrack

 It is currently 23 May 2017, 03:30

### GMAT Club Daily Prep

#### Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.

Customized
for You

we will pick new questions that match your level based on your Timer History

Track

every week, we’ll send you an estimated GMAT score based on your performance

Practice
Pays

we will pick new questions that match your level based on your Timer History

# Events & Promotions

###### Events & Promotions in June
Open Detailed Calendar

# Derivative Regulation

Author Message
Intern
Joined: 01 Aug 2008
Posts: 45
Followers: 0

Kudos [?]: 8 [0], given: 0

### Show Tags

13 May 2009, 14:26
http://news.yahoo.com/s/ap/20090513/ap_ ... regulation

"Under Treasury's new plan, companies like AIG would have to prove they have enough reserve capital to support its sale of the derivatives."

That's a novel concept...

jb32, thoughts?
Director
Joined: 16 May 2008
Posts: 885
Location: Earth
Schools: Cornell '11
Followers: 8

Kudos [?]: 143 [0], given: 29

### Show Tags

13 May 2009, 14:33
Uh-oh. Here we go again.....

mbafwi wrote:
jb32, thoughts?

_________________

"George is getting upset!"

GMAT Club Premium Membership - big benefits and savings

Current Student
Joined: 28 Aug 2007
Posts: 492
Schools: Kellogg Class of 2012
WE 1: Energy Risk Consulting
WE 2: Commodities Finance
Followers: 4

Kudos [?]: 37 [0], given: 11

### Show Tags

13 May 2009, 20:32
Isn't this similar to what FAS157 already requires, except assuming default probability is 100%? Companies already complain about credit reserves at the levels they are now, and this is just going to tie up even more capital. I don't get how this is practical.
Senior Manager
Affiliations: ACA, CPA
Joined: 26 Apr 2009
Posts: 435
Location: Vagabond
Schools: BC
WE 1: Big4, Audit
WE 2: Banking
Followers: 5

Kudos [?]: 91 [0], given: 41

### Show Tags

15 May 2009, 16:30
No,

FAS 157 deals with defining fair value and establishing a framework for measuring fv.
Credit reserves (provisions) are created if the entity FV is lower than carrying value. I am keeping it very generic here.

What this article talks bout is - having reserve capital (to start off with) to issue/create OTC derivatives. Ppl in AIG and their likes, issued tons of CDS's with no capital backing hoping that none of it would get triggered. Of course, we all know what happend to them now!

unhedged wrote:
Isn't this similar to what FAS157 already requires, except assuming default probability is 100%? Companies already complain about credit reserves at the levels they are now, and this is just going to tie up even more capital. I don't get how this is practical.

_________________

If you have made mistakes, there is always another chance for you. You may have a fresh start any moment you choose, for this thing we call "failure" is not the falling down, but the staying down.

Current Student
Joined: 28 Aug 2007
Posts: 492
Schools: Kellogg Class of 2012
WE 1: Energy Risk Consulting
WE 2: Commodities Finance
Followers: 4

Kudos [?]: 37 [0], given: 11

### Show Tags

15 May 2009, 20:06
Ah thanks, I was thinking of it in terms of exit price. You're right, FAS 157 is mostly about defining how to come to fmv, I just have come across it in context of the credit reserves.
Senior Manager
Affiliations: ACA, CPA
Joined: 26 Apr 2009
Posts: 435
Location: Vagabond
Schools: BC
WE 1: Big4, Audit
WE 2: Banking
Followers: 5

Kudos [?]: 91 [0], given: 41

### Show Tags

15 May 2009, 21:10
If you wana go into provisions for reserves and all that good stuff, you need to look into FAS 114 - Accounting by Creditors for Impairment of a Loan

unhedged wrote:
Ah thanks, I was thinking of it in terms of exit price. You're right, FAS 157 is mostly about defining how to come to fmv, I just have come across it in context of the credit reserves.

_________________

If you have made mistakes, there is always another chance for you. You may have a fresh start any moment you choose, for this thing we call "failure" is not the falling down, but the staying down.

Re: Derivative Regulation   [#permalink] 15 May 2009, 21:10
Similar topics Replies Last post
Similar
Topics:
OTC Derivatives reform not going far enough... 3 10 Jul 2009, 11:07
Niall Ferguson: Regulation Can't Be The Solution 0 18 May 2009, 13:22
The Downward Spiral of OTC Derivatives 0 04 Jun 2008, 14:54
An unstable house of (derivative) cards... 2 28 May 2008, 15:30
IBs exchange toxic derivatives for central bank capital 0 16 May 2008, 04:36
Display posts from previous: Sort by