Bank CDS Spreads React To Financial Regulation ~ Steve Blitz Morning Notes
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Friday, June 19, 2009

Bank CDS Spreads React To Financial Regulation

The point of the new financial regulations is to turn banks with somewhat sketchy portfolios into pillars of strength by having to put up lots of capital under the watchful eye of the Fed -- and keep them from ever again making bad decisions with over-leveraged capital. The market read the plan and decided instead that banks are now more at risk.

In the past week, C CDS has widened 91.2bp, BAC 45.91, WFC 41.78. GS widened to 160bp from 125bp last Friday and JPM went from 87bp to 108bp in the same period. That is quite a percentage leap for firms that are out from under the TARP.

In fairness to the banks, credit spreads have widened throughout in the past week. Reregulation may only be one reason and the Fed/Tsy will surely let us know what the other reasons are.

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