ECB supports initiatives to revitalise interbank market | Cypriot rescue drives up gauge of U.S. corporate-credit risk | Collateral concerns intensifying in derivatives market
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March 26, 2013
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ECB supports initiatives to revitalise interbank market
The European Central Bank is backing industry-supported efforts to ease collateral requirements in the interbank market, lessening banks' reliance on central bank funding. "The Chairman noted that the ECB encourages these market initiatives aimed at mobilisation of collateral if these help to revitalise the interbank market and to facilitate refinancing of these assets in the market," according to a published summary of a meeting of the ECB's money market contact group. Reuters (3/21)
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Cypriot rescue drives up gauge of U.S. corporate-credit risk
The Markit CDX North American Investment Grade Index, which measures U.S. corporate-credit risk, has increased after Cyprus agreed with international creditors on a plan to avert default. "These are good headlines, but the underlying tone suggests this is a small example of a bigger problem that still exists," said Timothy Cox of Mizuho Securities USA. Bloomberg (3/25)
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Collateral concerns intensifying in derivatives market
Collateral is in increasing demand in the post-crisis financial world, prompting concern about availability and whether its pursuit will create additional risk. Market participants and experts worldwide are expressing concern about collateral requirements for derivatives. "The scale of the need could be enormous," ISDA Chairman Stephen O'Connor said. The Banker magazine (U.K.) (3/2013)
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Panelists debate exemptions for credit-value adjustment
At an industry conference in London, panelists discussed the consequences of proposed exemptions to a capital charge for credit-valuation adjustment in Basel III. The proposed exemptions for trades with sovereigns, corporates and pension funds are part of compromise text for Capital Requirements Directive IV. Risk.net (subscription required) (3/21)
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Investors again turn to synthetic CDOs
Synthetic collateralized debt obligations are returning to popularity as investors look for alternatives to bonds. "That's a valid strategy for this part of the credit cycle: Don't stretch on credit quality, but rather leverage your exposure to better-quality credit," said Ashish Shah of AllianceBernstein. Bloomberg (3/20)
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Global banks boosted reserves during first half of 2012
During the first six months of 2012, the largest 101 banks in the world raised their core reserves by about €166 billion, according to the Basel Committee on Banking Supervision. Had Basel III been in force, the banks would have needed an additional €208.2 billion to meet capital rules. Christine Lagarde, managing director of the International Monetary Fund, says the pace of Basel III implementation "has been adjusted intentionally to support banks on the mend." Bloomberg (3/19), Financial Times (tiered subscription model) (3/19), The Wall Street Journal (3/19)
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Regulatory and Accounting Issues
Banks using CDS to cut capital requirements might face levy
The Basel Committee on Banking Supervision has proposed levying a charge on financial institutions that use credit default swaps to reduce capital requirements. The committee acknowledges that CDS can effectively manage risk but says banks should appropriately recognize the cost in their capital buffers. Read the Basel Committee documents. Read the Basel Committee news release. Reuters (3/22), Financial Times (tiered subscription model) (3/24)
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Regulators update guidelines for leveraged lending
A consortium of regulators has issued updated guidelines for banks that offer leveraged lending. The regulators, including the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, say underwriting standards have weakened, especially those that require companies to maintain their debt load within a prescribed limit. Read the OCC news release. The Wall Street Journal/CFO Journal (3/21), CFO.com (3/22), The Wall Street Journal (3/21), Bloomberg (3/21), Compliance Week (3/21)
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Basel panel studies alternatives to current-exposure method
The Basel Committee on Banking Supervision is looking into alternatives to the current-exposure method of calculating risks of derivatives counterparties, a source says. The panel's risk-management group discussed alternatives with ISDA and the Global Financial Markets Association late last year, a senior international regulator says. Risk.net (subscription required) (3/25)
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Walter seeks compromise on international swaps regulation
Securities and Exchange Commission Chairman Elisse Walter wants domestic regulators to rely on international rules for cross-border swaps when they are equivalent, while preserving U.S. regulators' right to impose their rules when no comparable ones exist. "The domestic regulator would continue to have the ability to apply certain key policy requirements of local law when foreign law does not impose comparable requirements or provide comparable protections," Walter said. Reuters (3/25), Bloomberg (3/24)
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EU aims to boost market for securitised debt, covered bonds
EU Internal Market Commissioner Michel Barnier is poised to publish draft plans on stimulating the market for securitised debt and covered bonds. The move is intended to bolster investment in businesses. "Europe is confronted by a range of constraints that affect its long-term financing capacity," according to the European Commission. The plans would cover "prudential rules, corporate governance and financial markets." Bloomberg (3/24)
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European transaction tax prompts concerns about collateral
The European Commission's proposal to tax financial transactions could raise €35 billion annually, but market participants are concerned the levy would put a squeeze on collateral. "It could drastically reduce the mobility of collateral and drastically increase transformation costs, making collateral more inefficient from a mobility perspective," said Staffan Ahlner of Bank of New York Mellon. "We don't believe it is the intention of the proposal, but it is one of the unintended consequences." International Financing Review (free content) (3/16)
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IACPM News
2013 IACPM Educational Seminar – May 21
The critical role credit portfolio managers play in business planning, strategic decision-making and hedging techniques are some of the areas to be addressed in this all-day session offered on Tuesday, May 21, the day before our full 2013 Spring Conference begins.

The sessions are taught by senior portfolio managers who are experts in portfolio management and Directors of the IACPM. Join us by registering now as spaces for this all-day session are limited.

Highlights from the agenda:
  • CPM in a Changing Environment, Som-lok Leung, IACPM
  • Business Models for Portfolio Management, Jeffery Weaver, KeyCorp
  • Active Credit Portfolio Management Techniques and Toolkit, Sarah Cheriton, Lloyds Bank
  • How to Manage a Credit Portfolio: A hands-on simulation exercise, Chia-Ling Hsu of Rutter Associates
  • Implementing CPM: From Analytics to Action, Richard Henshall, Westpac
The IACPM offers group rates for four or more people from one firm provided they register together. For more information about our Educational Seminar and our Annual Spring Conference, please visit our website at www.iacpm.org.
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