Ted Butler: Barrick''s quarterly hedge book loss far exceeded quarterly profit

Section:

By Eric Dash
The New York Times
Tuesday, February 28, 2006

http://www.nytimes.com/2006/02/28/business/28bank.html

A bank created to provide emergency backup for the Treasury market
will be ready to operate in the next 18 months, a bond industry
group is set to announce today.

The so-called NewBank exists largely on paper, but like a superhero
on standby, it can spring into action to stabilize the government
securities market if a legal or financial disaster strikes.

The bank is a result of a five-year effort by government and banking
officials to draw up plans in the unlikely event that either J.P.
Morgan Chase or the Bank of New York, the only existing clearing
banks in the Treasury market, are suddenly unable to operate.

The two clearing banks play an obscure but crucial role in the
government securities market, processing more than $1.9 trillion of
very short-term trades each day between investors who want small but
safe returns and dealers who want to finance securities positions.
The industry's dependence on just two big institutions has long
concerned the Federal Reserve, which fears the fallout of a
potential trading disruption.

"All of a sudden half of the securities would not be able to clear
their overnight positions," said Donald H. Layton, the former vice
chairman of J. P. Morgan Chase who will lead the NewBank
effort. "This is a very low likelihood event but it is highly
disruptive if it occurs."

The terrorist attacks on Sept. 11, 2001, underscored just how
vulnerable the clearing system was: Bank of New York's trade-
processing operations were troubled for days, causing problems
across the banking system that took months to correct.

Shortly after, the Federal Reserve and the Securities and Exchange
Commission began raising concerns about what would happen if a
clearing bank's activities were severely disrupted again.

Both J. P. Morgan and Bank of New York built backup facilities
outside the New York metropolitan area to stay ahead of federal
regulators and make sure their clearing operations could never be
physically shut down. J. P. Morgan has upgraded an existing
operation in Dallas; Bank of New York now has a clearing center in
Florida.

But in a May 2002 report, the regulators also expressed fear that
sudden and unforeseen legal problems or a credit downgrade would
cause either bank to abandon the clearing business. Their proposal
called for a quasi-public entity that could perform emergency
clearing functions for the entire Treasury market. The government-
led idea drew a cool reception from the banks.

In response, a working group of banking executives and government
officials was formed by the Federal Reserve to examine other ways to
address the problem. Their solution, a privately organized "standby
bank," emerged in 2004. This dormant bank would leap into action
only if a credit or legal crisis caused investors and dealers to
withdraw their business from either of the two existing banks and if
no other qualified buyer, like Bank of America or Citigroup, stepped
forward to buy the clearing operations.

Regulators released formal plans for the NewBank in December. The
Bond Market Association, an industry group, is expected to announce
today that it will take responsibility for enacting them over the
next 12 to 18 months.

The NewBank will have no physical location and no full-time
employees. It will be funded with roughly $500 million from 24
banking industry shareholders so that, if needed, it could
immediately have money available to begin clearing trades. It will
be set up as a limited-purpose trust company under the New York
state banking laws and will also be regulated by the Federal Reserve.

In a crisis, however, the NewBank would take over the legal position
of the existing clearing bank and replace its top officers with a
small group of designated executives from other institutions. The
NewBank would then take over the troubled bank's existing operations
to process the trades.

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