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Like any useful product or service, the use of multiple prime brokers by hedge funds has evolved over the last fifteen years. We are now entering our third major iteration of the multi-prime model. Before we look at version 3.0 let’s take a brief tour of the earlier versions of the multi-prime model.
Pangaea has just developed a new training course: Basel III: The Impact on Prime Brokers and Hedge Funds. There has been much discussion, and confusion, about the effect of the Basel III rules on the banking industry and the subsequent impact on the banks’ clients.
“There are known knowns… there are known unknowns… and there are unknown unknowns…” Donald Rumsfeld
In this age of uncertainty over the regulatory impact on the banking industry we turn to former Secretary of Defense, Don Rumsfeld[1] for some guidance on how to think about managing counterparty risk. Let’s break down this quote and see where it leads us.
How will the next crisis look? We’re not talking about cause but effect. No one knows what will tip the balance, where that vulnerable inflection point lies. Examining some possible scenarios can help us to prepare and protect ourselves during the next financial crisis.
Senator Elizabeth Warren was back in the news recently spinning her one issue platform (perhaps presidential) calling for the breaking up of Citigroup. In her reference to the breakup of Citigroup she said, “ We should have broken you up into little pieces when we had the chance.” What those pieces would be one can only wonder because Senator Warren hasn’t let us in on the specifics of her plan. Though she does seem sure that their sheer size is the problem of the major US banks. She went on to say, “Can someone pass something, anything to reign in these banks?” she pleaded in her news conference.” Uh, Dodd Frank? Basel III? The new capital, leverage and liquidity rules are doing more to shrink the size of the major banks than Warren wants to admit or realizes.