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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: chic_hearne who wrote (56678)1/11/2001 12:12:00 AM
From: Archie Meeties  Read Replies (1) of 436258
 
By "asset requirements" or "margin requirements" governments mean the amount of funds a bank, as a % of total assets, must keep readily available. You might think equities would be an odd place to keep readily available funds, since in the event that everybody needed them, they wouldn't exist. In any case, the volatility of the equity determines how much of an asset they can represent. So devil stock couldn't back up much assets, even it a bank had a ton of BRCM or something. The nik dropping below 13k creates two problems, the most obvious that the reserve requirements of some banks force them to begin liquidating some holdings and thus get the full "asset value" from the holdings. Of course you see the problem here. If more than one bank does this at a time, the market tanks and consequently volatility soars. Since volatility is rising, these equities are less valuable as reserve assets, causing more raising of cash, and so on. We'll have the same problem here if the asset base continues to shrink.
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