China's banks race to get bad loans under control | Banks are relieved by leveraged-loan review results | Global conflict, froth worries cut corporate-bond sales
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August 12, 2014
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China's banks race to get bad loans under control
After years of dismissing warnings about deteriorating loan quality, China's banks are tightening lending terms and cutting off high-risk borrowers. In one case, the Bank of Communications sent teams of researchers to Zhejiang province to look over the assets of distressed borrowers. Reuters (8/7)
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Banks are relieved by leveraged-loan review results
An annual process called the Shared National Credit review conducted by the Federal Reserve, the Office of the Comptroller of Currency and the Federal Deposit Insurance Corp. examines banks' leveraged-loan portfolios. The assessment is expected to find that results are largely in line with those from last year and concerns about excessive violations were unfounded. The report is expected to be published in the fall. Reuters (8/5)
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Global conflict, froth worries cut corporate-bond sales
With conflicts flaring in the Middle East and Ukraine, global corporate-bond sales in the first eight days of August were at their lowest point in about a year, according to data from Bloomberg. Lower sales also come as the U.S. Federal Reserve and others note indications of excess credit. Bloomberg (8/11)
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High-yield bonds lose luster with European investors
Europe is seeing signs of an impending sell-off in high-yield U.S. bonds. "We are treading very carefully in the high-yield space," said Ariel Bezalel, who supervises the $3.8 billion Jupiter Strategic Bond fund. "We have had to say no to the vast majority of transactions this year." Bloomberg (8/8)
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Group: Low liquidity drives investors to "excessive" risk-taking
Low market volatility is encouraging investors seeking higher returns to take on more risk, according to the Treasury Borrowing Advisory Committee, a group of Wall Street banks. Financial Times (tiered subscription model) (8/6)
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Regulatory and Accounting Issues
ECB: Banks' stress test to incorporate asset review
The European Central Bank has offered more insight into its stress test of eurozone banks by noting that an asset-quality review will be incorporated into the assessment. The ECB also plans to consider how future lawsuits and fines would affect lenders. Bloomberg (8/8), Reuters (8/8), MLex (subscription required) (8/8)
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U.S. regulators move to eliminate early-termination rights
The Federal Reserve and the Federal Deposit Insurance Corp. are working to remove early-termination rights for financial counterparties on new swap contracts if a financial institution fails. "This may make derivative contracts less attractive to everybody," said Columbia professor Franklin Edwards. "But that may also be what regulators want." International Financing Review (free content) (8/9)
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"Living will" review boosts tension between banks and regulators
The Federal Reserve and the Federal Deposit Insurance Corp. have notified 11 of the biggest banks in the U.S. that they need to remedy major shortcomings in their "living wills," documents that are supposed to show how the banks can go through bankruptcy without government support. The banks were surprised by the public criticism, and tensions are building between Washington and Wall Street. The Wall Street Journal (tiered subscription model) (8/6)
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Treasury reviews use of standardized derivatives definitions
The Treasury Department is looking into the possibility that inconsistent reports on derivatives trading could be made more useful by relying upon standardized definitions. The financial industry has created definitions for the instruments, a Treasury Department Office of Financial Research advisory panel said. MLex (subscription required) (8/8), The Wall Street Journal (tiered subscription model) (8/6)
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FCA plans temporary ban on CoCo bonds
On Oct. 1, the U.K. Financial Conduct Authority will put a yearlong ban on the sale of convertible debt to retail investors. The decision comes on the heels of a European Banking Authority recommendation about the product. Reuters (8/5), The New York Times (tiered subscription model)/DealBook blog (8/5), The Wall Street Journal (tiered subscription model)/MoneyBeat blog (8/5)
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