US corporate debt at record highs wouldn't necessarily be worrying if companies had enough cash on hand. But they don't, according to TS Lombard economist Steve Blitz, and that plus the practice of borrowing against net worth may figure in the next recession.
China's total debt has ballooned since the global financial crisis and, as of the end of 2016, totaled 235% of GDP. But that isn't necessarily likely to figure into any new crisis, writes Nicholas Spiro, noting China has the singular will and plenty of resources to address any financial difficulties.
The European Central Bank's risk tolerance appears to be waning as its buying focuses more on sovereign and higher-trade corporate debt. The shift comes as European credit markets overall strain for liquidity as investors shy from risky funds and supply increases.
Bank of England Governor Mark Carney has warned a no-deal Brexit could produce an economic downturn to rival the 2008 financial crisis. He said in a specially convened meeting of the Cabinet potential consequences include double-digit unemployment, a drop of up to 35% in house prices and disrupted air and rail links to the Continent.
An increase in corporate debt and a decline in underwriting quality for high-risk corporate loans are boosting vulnerability of the US financial system, Federal Reserve Governor Lael Brainard says. "Rising risks are notable in the corporate sector, where low spreads and loosening credit terms are mirrored by rising indebtedness among corporations that could be vulnerable to downgrades in the event of unexpected adverse developments," she says.
Federal Reserve officials are debating the merits of requiring US banks to hold additional capital while the economy is good so they will have funds available if the economy sours. Some say the tool isn't needed, while others say it will help the Fed avoid having to raise interest rates aggressively.
Five financial regulatory agencies have issued a joint statement to clarify the status of guidance documents. The Federal Reserve, Federal Deposit Insurance Corp., Consumer Financial Protection Bureau, National Credit Union Administration and the Office of the Comptroller of the Currency say that such documents are not to be seen as regulations, do not have the force and effect of law, and would not be cited for violations of law in enforcement actions.
A study conducted by the Federal Reserve recommends a new system for measuring systemic risk within individual banks and across the banking sector that is less complex and calculated more frequently. The current "cumbersome" approach that relies on public quarterly filings would be replaced by a monthly measure that uses interbank loans and other data.
European and US global systemically important banks saw a widening of the gap between their liquidity coverage ratios during the first six months of 2018. The 12 European G-SIBs averaged an LCR of 144.8%, while the eight US G-SIBs averaged 120.5%.
The deadline for meeting transaction-data requirements under the Fundamental Review of the Trading Book might not give firms enough time to clean up the quality of data they must submit, including inconsistent historical data. "The problem is what to do with active but older trades and systems which have yet to be enhanced, where the [legal entity identifier] was not known or added when the trade was made," says Brian Charlick of CGI.
Every year the IACPM Annual Fall Conference takes place in North America and draws 250-plus credit portfolio managers and other related industry experts from around the country and internationally. This year's conference will be held in Stamford, Conn. -- conveniently located close to New York City -- at the Hilton Stamford Hotel & Executive Meeting Center on Nov. 15-16. Registration is now open, and the IACPM is urging registering now to take advantage of early rates. Group discounts can be obtained by contacting Dani Gelband. For more information or to register for the meeting, please visit www.iacpm.org.
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The IACPM is an industry association established 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