That all securitised bonds must be sold to end investors and not congregate on the balance sheets of banks, sitting atop a pile of illiquidity and leverage?
On the other hand, some bearish China watchers say all is not known about the balance sheets of banks like China Construction because the government is not transparent.
Indeed, when foreign capital stampedes, its impact on the balance sheets of banks and private enterprises, when they have large unhedged foreign liability, can be devastating, as seen in East Asia.
Other than help buy time, it does not reduce the sovereign debt burden of European countries nor improve the balance sheets of banks that hold significant amounts of that debt mostly European banks.
What was the weakest asset class in the US and spread to the balance sheets of many banks was one of the strongest in Canada.
This would have potentially serious consequences for the balance sheets of Japanese banks, insurers, pension funds and households that are the main holders of government debt that totals more than 200% of GDP.
One key difference from the current system, which involves selling the underlying loans to Fannie Mae and Freddie Mac is that, with covered bonds, the loans stay on the balance sheets of the banks.
FORBES: House Committee Approves New Method For Financing Mortgages
In power since December, its new government has moved quickly to reform the labor market and cut public debts, but the total hole on the balance sheets of its banks has remained the big unknown.
There is now a big gap between the two definitions of net debt, largely because the ONS took the decision to include all of the balance sheets of the banks that are majority owned by the public sector.
Acute budget and external debt strains in Greece, Italy, Ireland, Spain and Portugal are testing confidence, impacting the balance sheets of many banks, and posing political challenges to the leaders of the 17 nations that all use the Euro as their currency.
FORBES: To Save Itself, Europe Must Adopt Economic Growth Strategies
The authorities have also had to resort to quantitative easing, using the balance-sheets of central banks to ensure the funding of clearing banks and to keep the lid on bond yields.
Initially it prescribed its usual medicine of tough budget tightening but backed off quickly after recognizing that the policy was accentuating the drastic drop in economic output caused by the battering sharp currency depreciation had delivered to the balance sheets of companies and banks that had borrowed abroad.
This restoration of balance and growth will in time also be reflected in the balance sheets and profits of the banks.
When the Tokyo stockmarket ended the year down 42% on a year earlier, the balance sheets of Japan's banks and companies suffered huge losses, pummelling their share prices.
This solution, of the ESM bypassing the balance sheets of national governments and directly recapitalising banks, was already rejected by finance ministers when a number of Spanish banks were close to collapse last year.
Yet loans that are not actively traded account for some 60% of British banks' balance sheets, for instance, according to a Bank of England paper on fair value.
The battle is over whether, when and how the banks and their shareholders must acknowledge the true state of the banks' balance sheets and take the losses required to put them right (see article).
ECONOMIST: Be cruel to be kind: penalise, nationalise, recapitalise
Put simply, the balance sheets of some Spanish and Italian banks no longer look like one more push would send them over the edge.
"Commercial real estate lending is a much larger group of banks, " says Pamela Martin of the Risk Management Association, noting that it takes up as much as 25% of the balance sheets of many local and regional banks.
It is becoming abundantly clear that government funds or at least government intervention will be necessary to catalyse the rebuilding of banks' balance sheets.
So there is a powerful incentive to sell higher-grade but lower-yielding loans, with a subsequent decline in the quality of banks' balance sheets.
ECONOMIST: ��Structured finance�� can bring unstructured losses
It is five years to the day since the world woke up to something bad happening to the balance sheets of the world's largest banks.
Lack of co-ordination has been blamed for making the financial crisis worse, with national authorities not aware of the true size of banks' balance sheets within their borders.
All that said, and following pressure from the European Commission, the centre-right government will commission two independent assessments of banks' balance sheets, to verify whether its rehabilitation plan is realistic.
But for every Tokyo-Mitsubishi, Sumitomo or Tokai trying, albeit belatedly, to clean up their balance sheets, there are dozens of lesser banks in Japan that continue to sweep their dreadful bad-debt problems under the carpet.
If the eurozone does turn the current jaw-jaw into a war-war against the weakness of banks' balance sheets, how much capital would European banks be forced to raise - and which big banks would be forced to raise the most?
In particular, in order to accelerate the removal of non-performing loans from their balance sheets, banks are further asked to take specific measures to dispose, in essence, of half of such loans within a year and a large part (around 80%) within two years.
The risk is that this regulatory onslaught, while well-intentioned, will lead to permanently higher funding costs, crushing margins, reducing earnings and returns on equity and increasing pressure on banks to shrink their balance sheets a real problem given banks finance 80% of the European economy.
With the resulting near-collapse of financial systems, the banks passed the debt load on to the balance sheets of governments as part of government rescue efforts.
This is a big reason why roughly a quarter of American banks' balance sheets have been securitised in recent years.
应用推荐