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Archive for the ‘Office of Financial Stability’ Category

Here is the first annual report of the Office of Financial Research.  Among other things, the report details what the OFR don’t know and would like to. Interesting reading for those interested in questions like what should be monitored? Why? Are there clever ways to measure it? And if not, how could one structure surveys or regulation to measure it?

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When the OFS invested TARP funds in banks (through CPP, TIP, AGP, and SSFI), it took in return preferred stock and warrants. The preferred stock has a coupon of 5% for five years and then a coupon of 10% thereafter, meaning that OFS is paid a five percent return on investment for 5 years and then a ten percent return. The institution can buy back the preferred stock at its face value at any time, which limits the upside return for OFS (the taxpayers). Thus, from preferred stock alone, we bear the risk that the financial institution goes broke and the preferred stock becomes worthless without positive upside return should the institution do very well. (more…)

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