BlackRock and Banks

BlackRock Solutions provided the key granular analysis underlying the landmark 2011 PCAR study of the Irish banks;  the NYT reports on its role in the Greek banking sector here.

27 replies on “BlackRock and Banks”

No doubt the Chinese walls there are appropriately high.

Sorry, I will get my tongue out of my cheek and say that again….

I still say their worst case scenarios for housing in Ireland completely underestimate the likely top to bottom fall with the knock on effects to the banks capital plain for all to see – that’s of course if you subscribe to the view that the Irish banks should be holding Tier1 capital in excess of 10.5% of RWA – I for one think this is an insane policy in a deep depression.

All evidence since the PCAR document was produced last year suggests my thoughts expressed on this matter over the past year have been shown to be correct and Blackrock, for all the expertise which the Greeks have now bought into, wrong. I know I didn’t receive €30m for my advice.

NAMAwinelake has asserted some interesting stuff over the past 6 months or so into the Blackrocks domination into all kinds of areas. Perhaps the Greek govt should tune in.

One thing this shows is that good IT systems and good data capture and storage are crucial to bank supervision.

They also have significant benefits for bank management and operation and make doing business more efficient for the economy generally.

Whereas there seems to be good IT and information systems expertise in the NTMA, it is not clear that similar expertise exists in the Irish Central Bank.

It is critical that the Central Bank get on top of the IT issue for the benefit of bank customers as well as to enable proper supervision.

Re ” Mr. Phillips added that the company had internal guidelines, which are in place to “manage actual and perceived conflicts of interest.”

Now why do I not find that reassuring ? There is no regulation of this industry, vast potential for abuse, blatant examples of abuse, yet, nothing is done to put in the failsafe regulatory conditions that prevent abuse? Opportunity for shorting immense, any examination of the books, or investment portfolios attached to Blackrock ?

Clearly the investment portfolios and financial services provided by these firms is a double edged sword that needs to be regulated and controlled.

Münchau yesterday on property bubbles and busts . I wonder who’ll be right between him and Blackrock. Hmmn

“On my estimates, Spain’s house price adjustment is still less than halfway complete. In real terms, the US housing boom has been almost completely cancelled out. The graphs of historic bubbles, if expressed in real prices, have nice bell-shaped curves. This makes sense, since domestic property is an unproductive real asset. In Spain, as elsewhere, it would be reasonable to assume real prices will eventually fall to where they were in the mid-to-late 1990s.
The Spanish government has forced the savings banks to write down €50bn in their property portfolios this year. This will only be a small part of what will ultimately be needed if the housing market falls as I expect it will. Official estimates assume mild price falls and a quick rebound in the economy. Both assumptions are delusional. How can the Spanish economy rebound if the private and the public sectors are deleveraging at the same time, and are likely to do so for many years?”

@ Colm

“There is no regulation of this industry”

Eh, sorry? Have you heard of the SEC or the FSA?


The Fundamentally Supine Authority ?

Re the SEC

have a read of this. it is profoundly depressing

“Where was the Fed? The legislation repealing Glass-Steagall, the Gramm-Leach-Bliley Act of 1999, had one other subtle but highly significant consequence, as the FCIC report explains. It diluted the government’s regulatory authority over the new financial conglomerates such as Citigroup. Under the legislation, the Fed, the strongest of the regulators when it did its job properly, now oversaw only bank holding companies, the umbrella organizations under which the bank subsidiaries operated. The 1999 act mandated that the Fed rely on the SEC to oversee bank subsidiaries that dealt in securities, and that the Office of the Comptroller of the Currency oversee commercial banks. The practical result was that much of importance thus fell through the cracks of the 1999 bill. The FCIC report refers to this stripped-down authority as “Fed-Lite.” The Fed failed to do its job in any case. It made no adequate analysis of the risky CDOs. As far back as 2005, a peer review by other Federal Reserve banks criticized the New York Fed, then under Tim Geithner, for inadequate oversight.

Republican lawmakers are trying hard to cut back the budgets of the SEC and the Commodity Futures Trading Commission.”

Financial regulation failed over the last 20 years. Is there anything to suggest the next 20 years will be any different ? Other than the size of the bezzle.

@ Seafoid

regulation needs increased powers and resources, no question. To flippantly suggest that there is no regulation at all, on more than one occasion, suggests not understanding whats even there right now. Colm is a big fan of a massively increased government footprint on large parts of our economy, which has debatable merits given their performance in recent years.


Industry doesn’t work, its doing catchup on trying to regulate CDS and OTC links given previously. SEC at one time gave approval to a form of accounting, mark to market, that Enron used and exploited later to consequences we know of. SEC’s main tool is NRSR,
nationally recognized statistical rating. In 2008 banks traded under high marks from rating agencies shortly before meltdown. Same happened in Ireland.

“Notice the power that the nrsr bestows on incumbents.
Because almost all bond issuers hope that their bonds can be
bought by regulated financial institutions, they must seek a rating by at least one, and often two, of the nrsros. Thus, the
nrsros have a guaranteed market for their ratings. Even if the
participants in the bond markets were capable of devising better methods, technologies, or institutions for helping determine
credit risks, those new and improved ways could well falter if
the incumbent nrsros fail to embrace them, because of the
incumbent nrsros’ sinecure.”


Also orgs like Commodity Futures Trading Commission such as But few believe markets are not being manipulated and evidence exists they are.

Merkel at one time stepped in to outlaw CDS in Europe.

Anyone who doubts the weakness of regulation in financial services regulation familiar with CT scams, transfer pricing scams, OTC scams to name a few, could be intellectually challenged ! Its nearly as messy now as it was prior to Wall St Crash in 1929.

Regulation such as it was failed abysmally to not only prevent but also mitigate the crisis. No lessons have been learned and the next bust will be even bustier.

@ Seafold

Great read, they were selling paper back copies in in Hodges Figgis last year for 12 euro’s. I thought, why the hell all the reports? It is all here in Black and White. “One hundred invested in AAA or AA mortgage backed securities only required $1.60 to be held in capital while anything with a BB rating required $16 in security. It put the ratings agencies in the driving seat an they are still there in many respects.

@ zhou_enlai

“One thing this shows is that good IT systems and good data capture and storage are crucial to bank supervision.”

Agreed, but it would appear that our banks were sadly lacking in both the programs and will power to Query the data maze. I would love to know what 2,500 individuals in the CB and 300 more in the regulators office and a few hundred at the DoF were doing between 2000 and 2008. I would love to see the software they used I bet it produced lovely coloured graphs all going in the right direction to predict the inevitable “soft landing’ desired.

The poor Greeks, they obviously had data of sufficient quality. It was not a case of GIGO. However, the number crunching, the SQL’s to “extract” the necessary data and to root out the weaknesses? That work, was never going to be allowed to be carried out or sanctioned from above as it would have indicated, far too early, that the whole Ponzi scheme was going to go topsy turvy. Even today, this is something, I see being repeated in the DoF and NTMA as they deliberately fail to number crunch our own debt figures by including all 3 main categories of debt in arriving at our debt to GDP plus all the OBS and contingent liabilities which have accumulated and which have equal claim to any tax take. In America many states have 75% of their debt obligations OBS and the issue is starting to gain significant traction. Basically, getting too big to be ignored.

To my mind, BlackRock simply did what the Regulator and CB in Ireland could have done, were paid to do, and were statutorily bound to do. Every enquiry so far has failed to find anybody accountable. Now, however, Brendan Howlin is making more noises about getting to the bottom of it. I will believe it, when I see the terms of reference. Probably just another minister firing blanks. Howlin seems to be on a collision course with Patrick Honohan who studiously avoided wanting to know “names”. Finally, maybe we will be told these are the 150 or 200 people who were paid to prevent the disaster but contributed to it handsomely.

You crack me up.
Keep up the good work – its classic stuff – it should be recorded on one of those Golden record discs they stuck on the Voyager back in the days when we believed in stuff.

Whatever happens it should not be lost like those Wanderly Wagon tapes.

@ Dork

what exactly cracks you up? The financial services industry is one of the most heavily regulated in the world. That most of this regulation is poorly devised and more about creating paperwork than creating safeguards doesnt mean “there is no regulation”, it just means there’s really bad regulation. I expect exceptionally large increases in this bad regulation, and only modest attempts to create good stuff.

There is plenty of regulation and reporting that’s for sure. However, it is ineffective and the (massive) cost of implementing it is passed on to the end customer. Some of the budgets I have seen for things like RDR and Solvency II are truly eye-watering.

Whenever I have been sitting in a meeting between a financial services company and the regulator, in Ireland or the UK, it is pretty clear who the smartest guys in the room are (I would imagine it is the same elsewhere). If a smart youngster occassionally pops up working for a regulator, it’s not long before he’s lured away. ‘Run rings round’ are the words that come to mind.

I recall sitting in one meeting in Ireland (pre-Elderfield) and one director saying: “Sure, we’ll run that past xxx and it will be no problem getting him to OK it.”

Seems I now have to bone up on ‘FATCA’ – the Foreign Account Tax Compliance Act – as well…… It never seems to end… 🙁

+1 One thing the regulators are not behind the curve on are on budgets.

The amount of cost and complexity these gobshites add is unreal.

Good regulation is practically impossible to achieve, it would require very bright, capable, independent thinking, no nonsense, no bullshit people …. and these are just the type of people who would go mad in any regulatory environment.

“The financial services industry is one of the most heavily regulated in the world”

Does the regulation actually work? How many busts have we had in the last 20 years ?

Here’s a similar situation

Southern US daughters of Evangelical parents have the strictest no-sex- before-marriage control in the WORLD.

The rather unfortunately named Randy Hultgren (R-IL) announces Abstinence Education Reallocation Act

Evangelical daughters have the highest STD and pregnancy rates of OECD teenagers.

@ Seafoid 5:24


Mention of Ferguson’s Inside Job freely available on the internet a must see.

Financial Crisis Enquiry Report I decided to order just to remind myself of what a real inquiry into banking might be compared to the Irish cover ups and failure to hold trial against the Anglo mob, too many political skeletons in the cupboard….

Re Dodd-Frank its no Glass Steagal, separation of commercial banking from investment banking, its there still. Investment banking hasn’t been culled but with added discrete regulation in some ways is rubber stamped. We have public open exchange traded commissions for OTC’s advocated but regulation is left to previous organisations like SEC or eg Commodity Futures who didn’t police even with the powers they had. But its a lot better than nothing and we’ll have to await a major blowout perhaps led by the worsening situation in Europe as it enters Phase 11 of its meltdown crisis to bring about more reform.

@ Seafoid

Regulation does work, obviously not as well as it ought, that’s why the Garda are so busy. The real question is, what is good regulation and what is bad regulation, good law and bad law. On that philosophical note, I bid you adieu 🙂

Without global regulation, the institutions for which presently do not exist, the present financial system will continue in its out of control parasitic parabola … and there must remain a strong probability, notwithstanding the capture of the Political System Executives by said Financial System, that the entire system will KRASH … with nasty consequences for most earthlings in their mundane everyday Lifeworlds ….


7_of_Nine would like to invite you to give a guest lecture to her high infants class on Nirvana-229 – note this is the same class to which she gava a 5% assignment on the future of the Earthlings some time back on this blog ….

… they came to the conclusion that the era of the earthlings would end in 18 months with the final battle between the 4 hedge funds still standing – at which time The Blind Biddy Hedge Fund was launched …..

The more this goes on the more I admire Smith, Weber and Marx – pity that no one reads them any more ….

Fair point – I can’t really disagree with that.
I am in the keep it simple stupid camp myself – partially because I am stupid and partially because it might possibly work a little better.

@Eoin Bond

One wonders if the Central Bank has anybody who has an overview how database queries (your “SQL’s”) can be used to get information across all the banking operations, even if the Central Bank was bothered looking for it. No doubt they have experts in different areas but an overview of all areas is required to have a coherent policy of enabling regulation through IT.

For a start, all banks should be required to store information in a way that is consistent with Central Bank requirements. They should also keep the CB up-to-date as to the structures of underlying databases and all changes thereto so that the CB can analyse what data is available beyond that which the CB has required.

I suggest that banks should be forced to reveal data storage know-how to the CB and the CB should be entitled to require other banks to replicate data structures which the CB considers beneficial to the CB in carrying out its statutory duties (but other know-how should remain confidential).

The CB needs to dictate through regulation what must be achieved in terms of interoperability of systems and their ability to interface with third party systems, including possibly the CB’s own systems in time.

The IT problem in banking is also a problem of Silo-isation. Many parallel systems have been set up and not properly integrated. Lending, securities, treasury, risk management, audit and asset valuation IT systems are all largely independent of each other within banks and also on an inter-bank basis. (Please excuse my amateur use of banking terminology.) We also have the most backward banks in europe when it comes to electronic funds transfer.

The Civil Service itself allowed its IT systems to fracture spectacularly over the years. This arises from the Civil Service’s view that silo-isation is the ultimate administration technique. Is it any wonder that the Civil Service cannot develop proper IT related regulations for the Banks when they cannot properly manage their own systems??

(Brian Cowen did announce that there would be an over-arching body dealing with IT procurement in the Civil Service but this inititive appears to have evaporated into the ether like other well intentioned initiatives re IT.)

@ zhou_enlai

The CB should impose mandatory systems software solution across the whole of the Irish banking system. In the past, this may not have been feasible because they were in private ownership. That issue no longer applies and I am sure BoI will yield to the wishes of the CB. We hear a lot about banks being of systemic importance but little about Systems software and database architecture being of systemic importance. It is and it should be treated accordingly.

For instance, “ORACLE FLEXCUBE is a universal banking solution for retail, corporate, internet and investment banking. From Front to Back-office. FLEXCUBE also has the ability to support multi-bank, multi-currency and multi-channel operations, using a widely recognized data model that will keep abreast of market dynamics.”

There are amongst us, some world class individuals who understand the complexities and who have worked on the production of banking systems software for American companies. I have seen people passed over for fatuous reasons. Maybe certain people for instance, did not like answering to a woman or did not wear the right rugby tie. That is what has us in the pickle we are in.

@Robert Browne

I remember years ago reading baout the “rise of the CIO” and how CIOs was likely to be a stepping stone to CEO in big corporations in the future. I don’t think I have ever even heard the name of a CIO in an Irish bank.

@ zhou_enlai

“The cloud will change IT as nothing before it has. It may end up removing the last vestiges of the captive IT organization that “owns” its enterprise as surely as the enterprise owns IT. CIOs are right to start addressing it now.” – The Why of Cloud, Richard Hunter, Gartner Inc., December 2011

I worked in one organization which was of the biggest Project Management companies in the country at the time, and the CEO used to come into the office in his bare feet! Telling us “he knew nothing about computers” but that he wanted this report on his desk for monday morning! That always meant goodbye weekend! I doubt if Warren Buffet knows much about unix or cloud but these guys know the right questions to ask. If someone had asked the right questions in Ireland it would have set off the alarm bells ringing years ago. Notice the way titles change from Personnel Manger to Human Resource Manager or from data base administrator to MIS etc. The salaries increase but the underlying skills required remain the same.

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