WASHINGTON, Nov 2 (Reuters) - Banks that back a proposed new multi-billion dollar investment fund that may purchase risky mortgage-related assets will need only one tenth of the capital they would need if they were to take the assets onto their own balance sheets, the Federal Reserve has said.
Under Federal Reserve rules on capital requirements for banks, off balance sheet committments require less capital.
Encouraged by the U.S. Treasury Department, Citigroup (C.N: Quote, Profile, Research), JP Morgan (JPM.N: Quote, Profile, Research) and Bank of America (BAC.N: Quote, Profile, Research) have proposed setting up a special investment vehicle to either guarantee or buy U.S. mortgage-related assets in order to help dissipate some of the credit concerns that caused this summer's global liquidity crisis
Promises to lend against assets transferred from a bank to the new fund, known as the Master Liquidity Enhancement Conduit, would qualify as a committment needing less capital, the Fed said in a letter last week to Citigroup.
"The credit conversion factor that would apply to the notional amount of the M-LEC liquidity facility would be 10 percent," wrote Norah Barger, the associate director of the Fed's Division of Banking Supervision and Regulation.
"The effect of the letter is that assets placed in the super-SIV (technically termed M-LEC, or Master Liquidity Enhancement Conduit) would have a capital treatment that is 10 times more favorable than if the same assets were placed on the bank's balance sheet," Mike Mayo, an analyst with Deutsche Bank said in a note to clients.
I am not Jewish but I am highly offended by your stupid remark. The Jews have the best record of positive accomplishments of any ethnic group in history. Look at the record of Nobel Prizes as one quick measure.
Their accomplishments have been in spite of the Christian Inquisition, Hitler and fools like you.
OK folks, explain this to a simple farm boy! Just where do the "banks" get the capital to invest in this fund? How does that capital get "off the balance sheet?" Will it be a tax advantage fo the corporation? Perhaps these finds come out of their "off balance cash account?!" ??? Sounds kind of silly to me!