In the long term, if other rating agencies follow suit and challenge credit worthiness of the US, popular opinion suggests that the status of the dollar as the primary reserve currency will come under a fresh challenge. The actual likelihood of this happening is low and no one does a better job of presenting this argument than Professor Pettis at China Watch.

In the short run while US regulators have stated that there will be no regulatory capital impact on holding US treasuries, European and Asian regulators still have to issue an opinion on this event. The most likely reaction given what will happen on Monday is that ECB, Bank of Japan and a host of other regulators are likely to toe the line to avoid further roiling markets and increasing capital requirements for domestic banks

The post market close rating cut on Friday evening should create a very volatile trading environment over the next week. While media coverage so far has downplayed the overall impact on the cost of US debt by comparing the two other extremes (Japan – lower rating, lower rates and Australia – higher rating, higher rates), the rating downgrade will have a significant impact on repo trades, the cost of funding proprietary positions and commodity markets over the next 4 – 12 weeks.

In this post we briefly look at the valuation methodologies used for assets other than real estate.

The Cost Approach is another valuation methodology for real estate. The post provides a step by step process of how the Cost approach works and presents situations where it should or should not be used. It also covers the type of data and data sources used for carrying out the analysis.

The Income Capitalization Approach is another valuation methodology for real estate. The post provides a step by step process of how the income capitalization approach works and presents situations where it should or should not be used. It also covers the type of data and data sources used for carrying out the analysis.

The Sales comparison approach is an estimation methodology for valuing real estate. The post details how the sales comparison approach works and presents situations where it should or should not be used.

We discuss the two-step process of real estate valuations in this post. We also briefly review the criteria that appraisers use for selecting the most appropriate valuation approach.

Before moving on to the specific techniques for valuing collateral we will consider some of the general principles of undertaking a valuation.

Just as important as the existence of sufficient collateral sources is, it is also essential that collateral valuation methods are accurate. In this post we consider how collateral valuation impacts capital and profits.

Earlier we considered how collateral helps with financial intermediation. However the extent to which it can help or play its role is dependent of the collateral law applicable. The next section covers what is meant by collateral law and what facets of collateral would normally be impacted by collateral law. It also compares the effectiveness of modern collateral law systems against the restrictions of unreformed traditional systems.