The Open Bank Resolution

Today we have a panel discussion going on at NZAE 2013 on the Open Bank Resolution policy.

I am on the panel as the third speaker – the goal is that I’ll summarise the arguments of the previous two speakers:  Ian Woolford (RBNZ) will be speaking about why the OBR is a good move, while David Tripe (Massey University) will be listing his concerns.

The slides of my presentation can be found here.  I wasn’t sure what the other speakers would cover, so I have 14 slides for a 15 minute presentation – during the actual presentation I will skip sections that aren’t necessary.  As they say, better safe than sorry.

I do not have the knowledge of the other two speakers, and look forward to learning a bit from them.  The purpose of my presentation is to “get us towards questions” by outlining a general view of how to view the OBR policy, and by asking a few questions.  If you are not at NZAE, feel free to thrown some questions in the comments and I’ll tell you if I learnt the answer at the conference 🙂

My notes Notes for OBR presentation

  • “Suppose iPredict had a contract out paying $1 in the event that there is any bailout of any of the major banks between now and 2025. Then suppose that RBNZ’s announcement of OBR were a complete surprise. By how much should the price of that contract have changed with the announcement?”

    • That is a really good question – was there a contract?

      • Nope. But I want to know what the proponents and opponents would pay for such a contract, as a way of benchmarking their beliefs. And if the numbers seemed too way out from your expectations, then hold them to it as a one-on-one bet.

        • Always agree with that

          • My bets, for what they’re worth:

            Any main bank bailout, no OBR, before 2025
            Bid: $0.05 Ask $0.20

            Any main bank bailout, with OBR, before 2025
            Bid: 0.03 Ask $0.10

            Uncertainty within the bid-ask spread.

            I expect there are lots of low-severity events that could be prevented by OBR, and a few low-probability events that trigger bailouts in both states. Hence the bigger reduction in asks than in bids across world-states.

            As I’m not very confident in those, I wouldn’t put up high stakes.