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

Question 1 when viewing the terms special returns or

Question 1. When viewing the terms "special returns" or "abnormal returns," we know this can refer to _____. the Efficient Market Hypothesis gains in excess of the market risk-adjusted average convertibles and warrants, ...

Search for pricing for an mri for a 13-year-old female

Search for pricing for an MRI for a 13-year-old female patient complaining of headaches. Determine the cost of this procedure to you and what the cost is to the insurance provider. Do a price comparison against three oth ...

You bought the contract during the day at 2010 and had to

You bought the contract during the day at 2010, and had to put up initial margin of $25,000. The maintenance margin is $12,500. At what contract price will you get a margin call? Explain.

Go to the financeyahoocom web site and click on the dow

Go to the finance.yahoo.com Web site and click on the Dow index. Select "Historical Prices" and download the monthly data for the Dow back to 1929. Graph these data using an Excel spreadsheet and comment on any strong pa ...

1 how has the fha achieved the goals for which it was

1. How has the FHA achieved the goals for which it was established? 2. Explain the two different dollar limits that apply to HUD/FHA-insured commitments. 3. In HUD/FHA settlement requirements, what rules apply to the han ...

1 compare and contrast the transport principles of economy

1. Compare and contrast the transport principles of economy of scale and economy of distance. Illustrate how they combine to create efficient transportation. 2. Describe the five modes of transportation, identifying the ...

1 when a doublet is added to a uniform stream so that the

1. When a doublet is added to a uniform stream so that the source part of the doublet faces the stream, a cylinder flow results. Plot the streamlines when the doublet is reversed so that the sink faces the stream. 2. A 2 ...

Wall street or great wallthe challenge to maintain

WALL STREET OR GREAT WALL? THE CHALLENGE TO MAINTAIN DOMINANCE IN THE GLOBAL FINANCIAL MARKETS On September 29, 2008, the American equities markets lost an estimated $1. 2 trillion in market capitalization. This astonish ...

1 why is it possible to consider anova as a special case of

1. Why is it possible to consider ANOVA as a special case of regression? 2. Give an example of when simultaneous, hierarchical, and stepwise multiple regression analyses might be used in research. 3. How is a log linear ...

1 devise a local search heuristic for the service network

1. Devise a local search heuristic for the service network design problem in which an individual move is to remove an existing arc or to add a new arc to the current solution. 2. Show that the deterministic VAP with mult ...

  • 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