Covered Bonds free essay sample

With liquidly rationing, (credit crunch) does offering covered bonds hold the answer or does it just offer banks the opportunity to increase their margin?. Discuss critically. Introduction In the modern day world, with technology and global markets expanding, the need for credit is a constant issue for economies to monitor. Liquidity rationing has been most relevant since the GFC, when the credit market essentially froze, sending financial markets in turmoil. Therefore finding ways to increase liquidity at a time when markets are volatile requires instruments of low risk. Covered bonds have recently gained momentum as a popular tool for banks to increase their liquidity whilst taking on very limited risk. Theory A Credit Crunch also known commonly as liquidity rationing, is the reduction in general availability of loans or credit, or a sudden limitation of conditions required to obtain from a financial institution. A credit crunch is therefore independent of interest rate movements. This does however result in the relationship between credit and interest rates to change so that, credit becomes less available at a given interest rate, or there ceases to be a clear relationship between credit availability and interest rates. These events of a liquidity rationing are often the result of reckless lending management, which leads to bad debt for institutions. Consequently, when these loans take a turn for the worse and the investors cannot reimburse their loan payments, banks are forced to take sudden action and tighten the availability of loans or credit. The Financial Crisis is a prime example of a credit crunch that resulted in a near collapse of the global financial markets; in which case was saved by a sovereign bailout to ensure liquidity was restored. Covered bonds are debt securities backed by cash flows from mortgages or public sector loans. They are similar in many ways to asset-backed securities created in securitization, but covered bond assets remain on the issuer’s consolidated balance sheet. A covered bond is a corporate bond with one important enhancement: recourse to a pool of assets that secures or covers the bond if the originator (usually a financial institution) becomes insolvent. (Rosen, 2008) For the investor, one major advantage to a covered bond is that the debt and the underlying asset pool remain on the issuers financials, and issuers must ensure that the pool consistently backs the covered bond. In the event of default, the investor has recourse to both the pool and the issuer. In addition, because asset’s remaining on the balance sheet covers the bond, means that it was essentially risk free when investing in a covered bond. This risk free sentiment surrounding covered bonds issued by institutions, have made covered bonds one of most successful and popular investment instruments since their creation in Denmark back in 1795. (Bujalance, 2010) The issue with covered bonds is if institutions can accurately evaluate the assets within their asset pools. Past events like the GFC have shown assets being falsely rated, which contributed to the decline in global financial markets. The difference between a covered bond and an unsecured bond is that an unsecured bond is dependent on the rating by the issuer, which means the structural enhancements and overcollateralization enables covered bonds to achieve higher ratings above the issuers of unsecured bonds. Furthermore, because a pool of assets does not back unsecured bonds, this results in greater volatility for unsecured bonds especially during downturns in the credit cycle. Asset back securities are therefore different to covered bonds as they are a security backed by a loan, lease or receivables. They operate under securitization. Often a separate institution, called a special purpose vehicle, is created to handle the securitization of asset-backed securities. The special purpose vehicle is responsible for bundling the underlying assets into a specified pool that will fit the risk preferences and other needs of investors. (Schwarcz, 2011) Discussion The covered bond market is the most important privately issued bond segment in Europe’s capital markets. Prior to the intensification of the financial crisis in October 2008, covered bonds were a key source of funding for euro area banks. The market had grown to over â‚ ¬2. 4 trillion by the end of 2008, compared with about â‚ ¬1. 5 trillion in 2003 (ECBC, 2009). The lack of credit risk transfer with covered bonds is an important distinction with this asset class compared with, for example, asset-backed securities (ABS) and other securities that were subject to securitization. This may well explain the resilience of the covered bond market at the initial stage of the crisis in August 2007. Biswas, 2010) Investors’ affinity for covered bonds can be explained by their relative safety compared with any non-securitized asset class. In relation to covered bonds, a pool of collateral backs the credit risk of the issuer, which is usually of high quality. Despite this, however, the covered bond market was not totally immune to the effects of the crisis. Up to the intensification of the crisis following the collapse of Lehman Brothers in mid-September 2008, it was clear that the covered bond market had outperformed other wholesale funding instruments. The widening of spreads was much less substantial for covered bonds than other ABS and unsecured debt. (Biswas, 2010) Graph 1 backs up this argument that the widening of spreads was less significant for covered bonds as the risk and leverage involved, is much lower. Graph 1 (BIS, 2012) A smoothly functioning covered bond market is highly important in the context of financial stability. This market provides a useful funding source for mortgage lending. For example, the issuance of covered bonds enables banks to match liability duration relative to its mortgage loan portfolio. As a result, this improves a bank’s ability to manage funding and interest rate risk. â€Å"In times of financial crisis, the risk appetite of investors shifted towards less risky assets. † (Bernanke, 2009) As the crisis progressed and became more intensive at the beginning of 2009, spreads in the euro area covered bond market continued to widen, and liquidity continued to worsen. The financial crisis exacerbated the lack of confidence between banks, leading to a halt in interbank market activity. In turn, this raised concerns about the liquidity risk of a large number of banks and, to a certain extent, their solvency, thereby threatening the whole banking system. This scenario sets the context for the introduction of the European Central Bank’s decision to provide support to the covered bond market in the euro area through outright purchases of covered bonds under the Covered Bond Purchase Programme (CBPP). This is evident in graph 2 shows the increase in covered bonds as opposed to unsecured and government-guaranteed bonds. Graph 2 (RBA, 2012) The rationale for selecting covered bonds to purchase outrightly over any other asset class can be summarised as follows (ECB, 2008): â€Å"Covered bonds possess a number of attractive features from the perspective of financial stability. Covered bonds as dual recourse instruments are less risky than most other bank securities and also increase banks’ access to long-term funding, thereby mitigating liquidity risks. In the context of the ongoing financial market turmoil, it is important to stress that, on the whole, covered bonds have proven themselves relatively resilient, in particular in comparison with securitisation†. Bernanke, 2012) The United States were at the forefront of the GFC and they also have significantly increased the number of covered bond purchases since the financial crisis. Graph 3 below is evidence of this. Graph 3 (Deutsche Bank 2011) It is evident that economies around the globe, in particular in the Eurozone have turned to covered bonds as a mean s to expand liquidity across financial markets. So much so that some many question if these covered bonds are just a means to increase their underlying margin, or are the benefits being filtered through to the consumers? An argument could be made that if an issuer increases there covered bond portfolio in ratio to its asset backed and unsecured products, the lower coupon they are able to place on the covered bond should be somewhat passed on to the consumer through the variable mortgage rate. If this isn’t the case, then a margin is produced as the issuer is receiving a higher rate on the loans than the coupon rate handed out. Therefore offering a cheaper source of funding and thus creating profit for the bank issuing the covered bonds. Firstly the covered bonds rates must be analysed in order to determine the potential margin that large financial institutions may acquire. The following graph represents the unsecured and covered bond rates. Graph 4 (Norges, 2007) The differences between the unsecured and covered bond rates are relatively marginal given the current policy decisions and market conditions since the GFC. It is evident from this graph that the margin gained from offering covered bonds is not significantly impacting the profits of Norges Bank. It is safe to assume instead that the benefit from covered bonds over unsecured bonds have to do with covered bonds low risk nature and liquidity benefits in times of crisis and recessions. Australia has also followed course and as of October 2011, the RBA issued $17 billion worth of covered across Australia’s top four banks. The reasoning behind this program was â€Å"The ability to achieve longer-term funding reflects the high credit quality of covered bonds, as well as an expanded investor base. † (RBA, 2011) The table below shows the Covered Bond program being distributed by Austalia’s largest banks. Table 5 (RBA, 2012) When looking at the table we have seen 17. 3 billion dollars’ worth of covered bonds being issued out of the total bond market of $90 billion in Australia. This poses the question to whether this cheaper source of funding through the lower coupon yield has been transferred across to the consumer through lowering the variable mortgage rate. However if the difference were rather minute, then passing on the margin through to the customers would not be required. It would therefore be plausible to assume that most globalised economies would be issuing interest rates are at all-time lows. In particular throughout the US and Europe interest rates are sitting about . 5-1%. It would be fair to assume that any earnings are not being transferred through to the consumer by lowering the variable interest rate. Table 6 highlights the Variable lending rate in Australia taken from the RBA. Table 6 (RBA, 2011) As can be viewed within the table, there is a definite drop in variable interest rates since the introduction of covered bond rates. Although this difference between the unsecured bond rate on average and the covered bond coupon rate can be up to 4%, the rate change we see here is a drop of . 4%. It is evident that the amount of funding that is and will be taken from covered bonds in comparison to the average banks source of funding on the whole is insignificant. This is would be seen to be an inadequate trade off. This provides clear evidence that the amount of funding that banks throughout Australia are accumulating from covered bonds in comparison to their average lendi ng rates are so minute that profits taken from covered bonds, would not make a significant impact on the banks overall profit margin. Therefore whether the banks are passing the funds on to consumers in not making a significant impact to the banks’ balance sheets. Conclusion There are significant advantages for utilising covered bonds due to the low risk nature, and liquidity requirements that has proven to reduce the effect of credit crunches on financial markets. This is evident in the growth of covered bond volumes that has been introduced by major economies post GFC. It is therefore safe to assume that major banks would be taking some sort of margin from the low coupon rates associated with covered bonds. With this being the case however, the difference in covered bond rates, unsecured and variables rates as seen above, demonstrates that on a overall scale, the margins generate would be relatively minute, thus not passing through to customers. In conclusion, covered bonds have been successful in cushioning the blow that the GFC has had on the credit market and liquidity rationing. However the increased volumes of covered bonds being issued by financial institutions have not resulted in significant profits to warrant any margins being filtered through to consumers.

Truss Essay Example For Students

Truss Essay The definition of a truss is any of variousstructural frames based on the geometric rigidity of the triangle and composedof straight members subject only to longitudinal compression, tension, or both:functions as a beam or cantilever to support bridges, roofs, etc. Trusses arethe most commonly used structural device used in architecture today. Trusses areused in almost every thing they are in your attic, barns, buildings, andbridges. A truss is used in architecture and engineering, it is a supportingstructure made of beams, girders, or rods usually made of steel or wood. A trussusually takes the form of a triangle or combination of triangles, this design iscapable of carrying large amounts of weight. Trusses are used for large spansand heavy loads, especially in bridges and roofs. Their open construction islighter than a beam structured platform but is just as strong. The parts of atruss are the tie-beams, posts, rafters, and struts; the distance over which thetruss extends is called the span. A truss is formed by connecting the ends ofstraight pieces of metal or wood to form a series of triangles lying in a singleplane. A truss is based on the fact that a triangle is a configuration thatcannot collapse or change its shape unless the length of one of the sides ischanged. The two most commonly used truss designs are the Howe and Warrentrusses. In 1806 the first patented bridge system, the Burr arch truss was usedin the US. The Town truss was invented in 1820, in 1840 the Howe truss wasinvented, and in 1841 the bowstring was invented it was a breakthrough inengineering design. The Pratt and Warren trusses were invented between 1838 and1844. The first trusses were made of wood and used for building homes and roofs. We will write a custom essay on Truss specifically for you for only $16.38 $13.9/page Order now During the 18th and early 19th centuries cast and wrought iron were used, mostlyin the construction of railroad bridges. Later in the 19th century steel becamethe most used truss material. Trusses are used also for the construction ofiron-frame industrial buildings and in roof and floor systems. They are alsoused in the construction of certain industrial machines, such as cranes, lifts,and in the design of aircraft and automobile frames. Two types of trusses arethe Howe and Warren trusses, Warren trusses are more efficient than Howe trussesin carrying a load considering the weight of material used in the constructionof the truss. The optimum ratio of height to span length is anywhere between0.23 and 0.41 for Howe trusses, and 0.16 and 0.39 for Warren trusses. The Prattand the Warren were simple skeletal forms that adapted well to iron andeventually to steel that is why they are two of the most popular trusses usedtoday. Trusses are very important in todays world they help us cross hu gebodies of water, they hold the roof up over our heads, and they allow cranes tobe able to support huge amounts of weight when building giant skyscrapers. Thefact is the invention of the truss is just as important as the invention of thewheel. Life would be very difficult without trusses. Architecture

Free Essays on Constitution Explained

Constitution of the United States Explained The Constitution was written in the 18th century and was made to replace the current rule of the United States and be the strict guideline of how we are to live and rule. The Constitution is broken up into various different parts consisting of the Preamble which is a basic introduction to the Constitution, Articles, Sections, and Amendments. Under these next few paragraphs I will break down the meaning of the Constitution to the best of my own ability. The Preamble is the beginning introduction to the constitution and explains the purpose of it’s being. It is to reflect how the Framers wanted to have a more perfect government, ensuring the safety of the people, wanting to benefit the people rather than to everyone with power, and intending for the Constitution to continue through future generations. Article 1 establishes the first of 3 branches of government, the Legislature. Section 1 declares the name of this Legislature to be called the Congress, which is to be split into two parts. Section 2 defines one of these two parts as the House of Representatives. There is a minimum age requirement of 25, the people if chosen are then to serve for only 2 years. The members are divided among the states evenly, based on the size of that state. The leader of the house that is chosen is also known as the Speaker of the House. Section 3 goes into the upper house, the Senate. The minimum age requirement of this branch is 30. Senators will be chosen by the legislature of the individual states and serve for 6 years at a time. Each state has 2 senators, regardless the size of the state. The Vice President is leader of the Senate, and the Vice President does not vote unless a tie occurs. Section 4 says that each state is responsible for creating a method of voting for Congress. Con gress must also meet at least once a year. Section 5 tells us that Congress has a minimum amount of member... Free Essays on Constitution Explained Free Essays on Constitution Explained Constitution of the United States Explained The Constitution was written in the 18th century and was made to replace the current rule of the United States and be the strict guideline of how we are to live and rule. The Constitution is broken up into various different parts consisting of the Preamble which is a basic introduction to the Constitution, Articles, Sections, and Amendments. Under these next few paragraphs I will break down the meaning of the Constitution to the best of my own ability. The Preamble is the beginning introduction to the constitution and explains the purpose of it’s being. It is to reflect how the Framers wanted to have a more perfect government, ensuring the safety of the people, wanting to benefit the people rather than to everyone with power, and intending for the Constitution to continue through future generations. Article 1 establishes the first of 3 branches of government, the Legislature. Section 1 declares the name of this Legislature to be called the Congress, which is to be split into two parts. Section 2 defines one of these two parts as the House of Representatives. There is a minimum age requirement of 25, the people if chosen are then to serve for only 2 years. The members are divided among the states evenly, based on the size of that state. The leader of the house that is chosen is also known as the Speaker of the House. Section 3 goes into the upper house, the Senate. The minimum age requirement of this branch is 30. Senators will be chosen by the legislature of the individual states and serve for 6 years at a time. Each state has 2 senators, regardless the size of the state. The Vice President is leader of the Senate, and the Vice President does not vote unless a tie occurs. Section 4 says that each state is responsible for creating a method of voting for Congress. Con gress must also meet at least once a year. Section 5 tells us that Congress has a minimum amount of member...

Anhydrous Compound Definition and Examples

Anhydrous Compound Definition and Examples Anhydrous literally means no water. In chemistry, substances without water are labeled anhydrous. The term is most often applied to crystalline substances after the water of crystallization is removed. Anhydrous can also refer to the gaseous form of some concentrated solutions  or pure compounds. For example, gaseous ammonia is called anhydrous ammonia to distinguish it from its aqueous form. Gaseous hydrogen chloride is called anhydrous hydrogen chloride to distinguish it from hydrochloric acid. Anhydrous solvents are used to perform certain chemical reactions that, in the presence of water, either cannot proceed or yield unwanted products. Examples of reactions with anhydrous solvents include the Wurtz reaction and the Grignard reaction. Examples Anhydrous substances exist in solid, liquid, and gas forms. Table salt is anhydrous sodium chloride (NaCl).Gaseous HCl is anhydrous, which differentiates it from hydrochloric acid, a solution of 37 percent HCl in water (w/w).Heating copper(II) sulfate pentahydrate (CuSO4 ·5H2O) yields anhydrous copper(II) sulfate (CuSO4). How Anhydrous Chemicals Are Prepared The method of preparation depends on the chemical. In some cases, simply applying heat can drive off water. Storage in a desiccator can slow rehydration. Solvents may be boiled in the presence of a hygroscopic material to prevent water from returning to the solution.

Developing an Evaluation Plan Assignment Example | Topics and Well Written Essays - 1000 words

Developing an Evaluation Plan - Assignment Example The tools that will be used in the evaluation process include questionnaires, surveys, assessment tests, and weight scales. This paper aims at analyzing the methods of evaluating the project and their outcomes. Interviews are the main method of carrying out the evaluation process. The interviews will be conducted face to face by the dietician and the physical exercise instructor. This is because these individuals have the knowledge of the project and they have the ability to interpret the non-verbal communication of the participants (Napoli, Shah, Waters, Sinacore, Qualls, & Villareal, 2014). In case these tutors need help they will recruit individuals who will help them to conduct the implementation and evaluation of the results. The diet and exercise tutors will also be involved in the interviews because they have knowledge of the questions that will help them to get the desired results (Wadden, & Stunkard, 2004). The face to face interviews will help in determining the attitudes and perceptions of the staff and participants who will take part in the project. These attitudes and perceptions will then help to know whether these members are willing to stop or continue taking part in the program. The interviews are efficient because they help the research to get unlimited, well-explained, and detailed responses. The other efficiency of interviews stems from the fact that the interviewers are able to read and interpret the body language of the respondents (Kang, 2012). The second method of evaluating the program is the use of questionnaires. Questionnaires are documents that contain questions that require written responses from the respondents. The questionnaires will be administered to the respondents occasionally to find out how they will be progressing with the program. The documents will contain both closed and open-ended questions to allow for

Buyer behaviour Assignment Example | Topics and Well Written Essays - 250 words

Buyer behaviour - Assignment Example In marketing the Galaxy Note 4 cell phone, the marketing team has to identify the specific customers, the location, specific time and the client’s requirements. â€Å"M† for measurable. In this section, the objectives are examined whether they are assessable in terms of their cost, quality, quantity, deadlines and frequency (Wayne, 2014). In addition, it is the extent that a product can be examined against an absolute standard. For instance, marketing the Galaxy Note 4 requires the accurate details about the cell phone, the cost and performance. â€Å"A† for achievable. The product marketer can answer questions such as how the objectives can be met by a person. That depends on the personnel’s experience, knowledge and skills. The sellers should possess the skills and knowledge to convince the customer to buy. â€Å"R† for Relevant. The goals can be realistic or high to achieve. The marketer should decide how high the goals should be (Wayne, 2014). For instance, when marketing Galaxy Note 4, the marketer should have a certain range of targets that is relevant. That should also answer what will be the impact of the implementation. â€Å"T† for time-oriented. This answers a question of when the strategies will be implemented and up to when (Wayne, 2014). Some products may end at a given date. For instance, marketing the Galaxy Note 4 during the Christmas

Dead Man in Deptford and Any Old Iron Essay Example for Free

Dead Man in Deptford and Any Old Iron Essay Using the extracts from Dead Man in Deptford and Any Old Iron, and the whole of A Clockwork Orange, discuss the effectiveness of Burgess wide and varied use of language and dialect. If I were to begin this essay with a foreign word, a phrase that had been obsolete for four hundred years, and a totally incoherent sentence, complete with fabricated slang terms, then the fair or foul reader (but wheres the difference) would probably dismiss it and I would receive an F. And yet I would be imitating the style of one of the twentieth centurys prolific and widely discussed authors: Anthony Burgess. In every novel that he has written, Burgess has displayed a love of, and an acute skill for, words and word-craft, which a blacksmith might display in his trade. As soon as I started to read A Clockwork Orange, I wanted to put it down again. In the second paragraph, I counted eighteen words that I did not understand, including such timeless gems as droog, rassoodocks and, my personal favourite, mozg. I was equally baffled when confronted with the two extracts. But I slavishly stuck to it (partly because of my rather demanding English master), mostly because I was personally intrigued as to what those terms meant. One soon realises that Burgess actually likes to do this it is his wordplay. But equally, it is also an integral part of the book; he adapts his style of language for a number of reasons Firstly, in order to complement the era within which his plot takes place. For instance, Dead Man in Deptford is full of extinct words such as simulacrum and inkhornisms, and further to this, it is written in the grammatical style of a sixteenth century playwright, with long and jumbled sentences such as You must suppose that I suppose a heap of happenings that I had no eye to eye knowledge of or concerning. And in A Clockwork Orange, there are many unknown words since the novel is set in the future, and presumably the language has evolved over time. Secondly, he includes certain words and phrases in order to set the scene and establish a certain ambience. An effective example is Alexs entrance into the treatment clinic in Chapter Three of Part two of A Clockwork Orange. Whereas before Alex has relied heavily on his invented words in his narration, here he only uses the basic words such as horrorshow. Instead he concentrates on the description of his surroundings, using the word white many times. The lack of slang contributes to this description and tells the reader what Alex is thinking at that moment. Here, for instance, he is wary of his new environment and not yet comfortable enough to use his familiar language. A third explanation for Burgess use of language lies in the variety of the various characters, in the novel and both extracts. This is where dialect and implied accent become very important. Any Old Iron provides a good example in Dai Williams. His speech does not really include unfamiliar words and phrases, but there is a huge difference in his style. Lets take the sentence, Back to it with your youth and your vigour and it is your shout now. Its length, enhanced by the use of and and the repetition of your, seems to imply the intonation and speed with which it should be read. There is a certain rhythm that cannot be avoided when reading it. In other words, it looks Welsh, and when read, it sounds Welsh. Examples in A Clockwork Orange where dialect is used to distinguish characters come at the end of Part One, where the starry old ptitsa uses swashbuckling and old-fashioned language, such as wretched little slummy bedbug. The several comic book villains in Alexs cell in prison also add some variety, and in this case, humour: Yeth, yeth, boyth, thatth fair. But the final explanation for Burgess wordplay is by far the most important: it influences the reader to think in a certain way. This is most prominent in A Clockwork Orange. In the first half of the novel every tolchock or kick that Alex makes is usually preceded by the word horrorshow, so that it is constantly drummed into the readers mind that what Alex is doing is good. In contrast, the description of violence in the second half of the novel, after Alexs treatment, lacks any poetry, elaborate slang, and therefore glorification. We see what Alex sees: pure, repulsive and undisguised violence. We feel what the narrator feels. This can be said of another part of A Clockwork Orange and a certain part of Dead Man in Deptford: wherever there is an argument leading up to a fight. In Dead Man the verbal jousting comes before a particularly large brawl, one that is described in a rapid and flowing manner, almost as a commentary. Marlowe enjoys what is happening, like Alex. But also like Alex, when Marlowe is describing violence later on in the novel (the executions), there is a complete lack of enjoyment and fancy wordplay. As a side note, there is one extra reason why our great philologist Mr Burgess uses such language and dialect. It is for the simple reason that it is vastly enjoyable, both for him and for the reader. In Clockwork and Dead Man, Burgess has had the opportunity to create words and styles that go against the rules of contemporary English (this is true of Dead Man because there are no records of how Elizabethan citizens spoke). At first this can prove to be extremely irritating and demanding, and the reader feels the need to reach for a dictionary after every sentence. It is particularly annoying because the reader knows that this is English, a language he or she should understand, and yet it is totally incomprehensible. But I personally enjoy immense satisfaction by simply reading the novel without help, and interpreting the words in my own time. It soon becomes easy and very rewarding.