Portfolio managers hold more corporate debt than ever | Wall Street finds success with CLOs | Esoteric securitization returns to Europe
June 20, 2017
IACPM SmartBrief
Credit Markets
Portfolio managers hold more corporate debt than ever
Corporate-debt allocations among portfolio managers are at a historic high of 37%, according to a weekly survey by Stone & McCarthy Research Associates. Meanwhile, Treasury allocations are down as managers extend their long-term search for yield.
Bloomberg (6/14) 
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Wall Street finds success with CLOs
Wall Street has focused on the collateralized loan obligation market, which was left post-crisis with a risk retention exception from regulations. The securitized products market is worth an estimated $10 trillion.
Bloomberg (6/19) 
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Esoteric securitization returns to Europe
Banks in Europe are looking into esoteric securitization to shift loans off balance sheets and to increase profit.
Financial Times (tiered subscription model) (6/18) 
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Institutional investors step into risky world of direct lending
Pension funds and life insurance companies are investing in specialist asset managers that lend directly to companies that can't get bank financing. They are moving into this area in order to secure higher yield, but this asset class is growing riskier as funds build up leverage and add complexity to products.
The Wall Street Journal (tiered subscription model) (6/15) 
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Regulatory and Accounting Issues
EU-US standoff continues over banks' risk models
Officials from the US and the EU concluded talks in Sweden without agreeing on global rules for banks' risk modeling. The Basel Committee on Banking Supervision will continue to work toward a consensus on the extent to which banks can rely on proprietary risk models to calculate capital requirements, a committee official said.
Reuters (6/16),  MLex (subscription required) (6/16) 
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US backs adoption of global bank-capital minimum
The Treasury Department, in a report recommending changes to the Dodd-Frank Act, supports a global minimum for capital held by banks. The report comes as the Basel Committee on Banking Supervision considers finalizing the minimum standard despite opposition in Europe.
MLex (subscription required) (6/13),  Risk (subscription required) (6/15) 
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FRTB takes bank risk assessments deeper
The Fundamental Review of the Trading Book was created to enable banks to better gauge risk, including a provision to use real pricing. Risk factors that fall outside the modeling guidelines will require additional capital set-asides.
Bloomberg Professional Services (6/14) 
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Fed promises more clarity on stress tests this month
Drawing on examples from last year, the Federal Reserve promised that later this month it will give banks a clearer idea of how it conducts stress tests. The promise comes in a letter to Congress from Fed Chair Janet Yellen, who also said instructions for the stress tests and supervisory scenarios would both be published by Feb. 15.
Reuters (6/16) 
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Experts warn about proposed CCAR revision
The Treasury Department's proposal to make the annual Comprehensive Capital Analysis and Review biennial and to eliminate qualitative grounds for failure would remove incentives for banks to revise risk management, experts say. "Unless you have a real, tough sanction that hits banks where it hurts -- in share prices -- banks will do what they did for years before CCAR came along, which is to treat all of this as something soft, that you didn't need to take seriously," said Dan Davies of Frontline Analysts.
Risk (subscription required) (6/14) 
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Fed reportedly might ease leverage-ratio effect on clearing
The Federal Reserve is considering ways to ease the supplementary leverage ratio, sources say. The change would reduce the cost for banks to clear derivatives trades for customers.
The Wall Street Journal (tiered subscription model) (6/14) 
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IACPM offers credit portfolio workshop in Singapore, July 5 -- register now
The IACPM and the Risk Management Institute of the National University of Singapore (RMI) are jointly sponsoring a Workshop on Credit Portfolio Management on July 5, 2017. The workshop provides an essential full-day course on risk and credit portfolio management with specific focus on developments in Asia-Pacific, including: Concentrations and Limits, Implementing IFRS 9, Using Insurance to Mitigate Risk, Counterparty Risk, and the Perspectives on the Asian Development Bank's Private Sector Portfolio.

IACPM will also be organizing sessions on the Evolution of Risk and Credit Portfolio Management - Balancing Multiple Complex and Competing Constraints in RMI's Policy Forum on July 6. For additional information, please visit IACPM's website at www.iacpm.org or contact Alison Christensen with any questions.
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The optimist proclaims that we live in the best of all possible worlds, and the pessimist fears this is true.
James Branch Cabell,
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The IACPM is an industry association established in 2001 to further the practice of credit exposure management by providing an active forum for its member institutions to exchange ideas on topics of common interest. Learn more at www.iacpm.org.

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