Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

ASSIGNMENT –PART 1

A.I.G. is often called the largest insurance entity in the world. A.I.G.’s total assets were $860 billion on 12/31/2008 (dwarfing any other insurance entity) with 116,000 employees, operating in 130 countries, with 71 U.S. based insurance companies, and 176 other companies representing non U.S. insurers and other financial services. Many regulatory issues are raised by A.I.G.’s structure: regulatory arbitrage in its multitude of companies and countries and its selection of a Gramm-Leach-Bliley regulator; its extreme unregulated systemic risk; and its complete lack of regulation of certain “insurance-like” components.

Review the paper titled: On the Financial Regulation of Insurance Companies written by Viral V. Acharya, John Biggs, Mathew Richardson and Stephen Ryan and answer the following problems. It is also strongly suggested you complete additional reading as is relvevant.

1. describe A.I.G’s business model and structure and why it was considered a systemic risk?

2. Identify and discuss the major factors which led to the failure of A.I.G.

3. describe how moral hazard and adverse selection materialized during the financial failure of A.I.G?

4. How did A.I.G and monoline insurers aid commercial and investment banks in avoiding capital adequacy requirements?

Assignment –part 2

Lehman Brothers Holdings was a global financial services firm which, until declaring bankruptcy in 2008, participated in business in investment banking, equity and fixedincome sales, research and trading, investment management, private equity, and private banking. On September 15, 2008, the firm filed for Chapter 11 bankruptcy protection following a technical run and a significant devaluation of its assets by credit rating agencies. Previously valued at over $60 per share, Lehman was now being traded in pennies. Your reading and research on the failure of the Lehman group would help you to answer the problems below and understand substantive reason for financial regulation.

1. Identify and discuss the weakness in Lehman’s governance practices.

a. What was the quality of the reporting to the Board by management;

b. What was Lehman’s treatment of internal limits and risk management mechanisms in an attempt to boost profitability?

2. What is leverage? Was Lehman leverage ratio consistent with that considered safe by regulators? What prevented Lehman from being able to safely and quickly deleverage?

3. List and discuss the financial events led to the erosion of Lehman’s capital base?

4. Define stress testing. What weaknesses & unusual practices were identified as it relates to Lehman’s stress testing.

The answers to both parts combined should not exceed 1500 words. Please provide answer written and bound on the date of presentation. No changes allowed once the presentation and discussions have taken place. Please provide answer written and bound on the date of presentation –October 28th no changes allowed once the presentation and discussions have taken place.

1. Why did the Federal Reserve rescue A.I.G but allowed Lehman Brothers to fail?

2. Does the rescue of institutions labeled ‘too big too fail’:

a. Strengthen the longer-term stability of financial services sector? If so how?

b. Encourage excessive risk-taking in the knowledge of an implicit ‘safety net’? If so describe why?

3. Discuss Lehman’s rationale for not hedging the illiquid aspects of its portfolio that were a result of its growth strategy.

4. Describe the business model of origination and distribution of mortgages. Discuss inherent risks brought by this model to Lehman, especially in light of the origination of subprime assets.

5. Discuss the im pact that Lehman’s compensation policies had on its subsequent failure.

6. How did Lehman’s liquidity challenges impact its capital adequacy position?

7. Define moral hazard and adverse selection?

8. Did A.I.G have any concentration risk? If so identify the type of concentration.
What impact can concentration risk potentially play in the solvency and liquidity of a financial institution? How does the A.I.G paper define systemic risk?

9. How did the subprime mortgage market impact A.I.G?

10. Define Counterparty Risk. Give 3 exs of how the Banking system is interconnected.

11. Define and describe Credit Default Swaps.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M92037

Have any Question? 


Related Questions in Basic Finance

1 how is a hazard different from a disaster2 what is the

1. How is a hazard different from a disaster? 2. What is the most frequent and widespread disaster-causing hazard? 3. What scale is commonly used to describe the effects of earthquakes? 4. How are earthquakes measured?

Bruce wayne borrowed 14 30000 for investment purposes on

Bruce Wayne borrowed $14 300.00 for investment purposes on May 19, on a demand note providing for a variable rate of interest and payment of any accrued interest on December 31. He paid $1,300.00 on June 28, $1,450 on Se ...

Consider the following values noin1 28 million cap rate 75

Consider the following values. NOIn+1: $2.8 million. Cap rate: 7.5%. Brokerage commission: 3%. Remaining mortgage balance: $12 million. Remaining book value: $14 million. Total depreciation taken: $4.9 million. Recapture ...

Before entering graduate school a student estimated the

Before entering graduate school, a student estimated the value of earning an MBA at $300,000. Based on that analysis, the student decided to go back to school. After completing the fi rst year, the student ran the NPV ca ...

1 holding the cutoff period fixed which method has a more

1. Holding the cutoff period fixed, which method has a more severe bias against long-lived projects, payback or discounted payback? 2. For a firm that uses the NPV rule to make investment decisions, what consequences res ...

One historian has given the following description of the

One historian has given the following description of the economy of the Roman Empire in the third century under the emperor Diocletian: The coinage had become so debased as to be virtually worthless. Diocletian's attempt ...

1 for each of the following patterns of databull what is

1. For each of the following patterns of data, • What is the probability of the researcher having made a Type 1 error? • What is the probability of the researcher having made a Type 2 error? • Should the null hypothesis ...

Read one practical article of how psychology affects paying

Read one practical article of how psychology affects paying credit card debt. You can easily retrieve possible articles by doing an online search using the terms "psychology" and "credit card debt." Summarize the main po ...

Discussioncourse wrap-up please respond to the

Discussion "Course Wrap-Up" Please respond to the following: • Imagine you have completed your bachelor's degree at Strayer and you are searching for a job in finance, accounting or business. Using various employment web ...

A what social and economic conditions support and encourage

(a) What social and economic conditions support and encourage healthy choices? (b) What social and economic structures affect health that have nothing to do with individual choices?

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen