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- Lack of CDS market on Greek bonds hinders risk management
A recent credit default swaps auction of contracts covering Greece's debt was successful, but trading in Greek CDS has remained on hold because of a contractual technicality. The situation has hurt the ability of market makers to manage risk. Traders are awaiting a ruling from the International Swaps and Derivatives Association on whether look-back clauses, which are typical in CDS contracts, can be used to reference the 9 March credit-event decision. Financial Times (tiered subscription model)
(3/25), International Financing Review
(3/23)     
- Experts call for review of sovereign CDS documentation
An auction to settle credit default swaps covering Greece's debt went smoothly, but experts said documentation for sovereign CDS should be reviewed. Market participants want to incorporate lessons learned from Greece's debt restructuring in sovereign CDS documentation. "The key point is this auction happened without surprise," said Francois Popon of Societe Generale Corporate & Investment Banking. Risk.net (subscription required)
(3/23)
- Report predicts big changes ahead for investment banks
Morgan Stanley analysts and Oliver Wyman released a report that says investment banks should decide whether to ramp up investment or exit areas as the industry faces significant upheaval. Wholesale banks could deliver returns on equity of as much as 14% in the next two years, according to the report. "The gap in returns will widen sharply between banks that manage to scale significantly where they compete and those that do not," the report says. "Pressure on returns is now critical and marginal change is no longer a viable strategy." Reuters
(3/25), Financial Times (tiered subscription model)
(3/25)
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| Regulatory and Accounting Issues |  |  |
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- Banks need to raise fresh capital, BoE committee says
The Bank of England's Financial Policy Committee urged banks to quickly raise capital and called on the government to give it authority to force financial institutions to do so if necessary. The committee said tensions in financial markets eased after the European Central Bank pumped liquidity into the system, but concerns remain. "The committee agreed ... that conditions remained fragile," the BoE said. "Questions remained about the indebtedness and competitiveness of some European countries. Banks with large exposures to those countries ... should be particularly alert to the need to build capital." Reuters
(3/23)
- Regulatory reform endangers credit portfolio management tools
Securitizations, credit defaults swaps and collateralized loans obligations have been greatly reduced since the financial crisis as regulatory reform and market trends have placed pressure on banks trying to manage credit risk. IACPM Executive Director Som-lok Leung says regulatory reforms such as Dodd-Frank's proposed rule 127b, which was aimed at deals like Goldman Sachs' now-infamous Abacus CLO 2007 AC1, are ensaring legitimate synthetic CLOs. "This is the anti-Abacus rule. It was never intended to cover the kinds of deals that banks use to manage their balance sheets," Leung explains. "Another challenge that credit portfolio managers face is
inconsistency from jurisdiction to jurisdiction. The UK says use ratings, while the U.S. wants to move away from them." Thomson Reuters
(3/21)
- Banks reportedly will get more flexibility on liquidity
The Basel Committee on Banking Supervision is expected to give banks more leeway on Basel III liquidity rules, sources said. Financial institutions have been urging the global regulator to broaden the types of assets eligible for their liquidity buffer. The committee aims to complete the rule by year-end. Reuters
(3/23)
- European crisis casts doubt on Basel III framework, expert says
Rudi Bonte, a former member of the Basel Committee on Banking Supervision, said Europe's sovereign-debt crisis raises concerns about international commitment to the panel's capital and liquidity rules. "In our meetings last year, we were all committed to deliver and to go ahead [with Basel III]," Bonte said. "Now, with the impact of the crisis in different countries ... there is a risk the commitment is not what it was, and that people are saying, 'OK, the crisis is almost over and it's still difficult, and we have to make sure we can sustain the economy and credit activity in our countries, so perhaps we shouldn't make it too painful for banks to digest all these difficult and complex requirements.' " Risk.net (subscription required)
(3/23)
- Deutsche Bank tweaks U.S. subsidiary to sidestep Dodd-Frank
Deutsche Bank is avoiding the Dodd-Frank Act by altering the legal structure of Taunus, its U.S. subsidiary. The law would have required Deutsche Bank to bolster the division's capital. "We have always had and will continue to have appropriate capital levels in all our U.S. regulated entities," said Duncan King, a spokesman for the German bank. "This action, which does not diminish any of our regulatory oversight, allows us to streamline our organizational structure, strengthening an already strong institution." Barclays made similar changes to its U.S. arm. The Washington Post
(3/23), The Wall Street Journal
(3/21)
- BoE suggests clearing guidelines for OTC derivatives
The Bank of England published a report outlining which over-the-counter derivatives it thinks should be eligible for central clearing. The central bank's paper also says clearing of OTC derivatives will require coordination with central counterparties and main dealers. "There is an urgent need to develop precise and timely metrics to monitor central clearing progress, work which was highlighted as a priority in the October 2011 Financial Stability Board progress report," according to the paper. The Trade News (U.K.)
(3/26)
- Professor: Regulators should review DVA hedging through CDS sales
Damiano Brigo, a finance professor at King's College, said regulators should crack down on banks that sell credit default swaps to hedge debit-value adjustment. Brigo said the move might be fine during normal times, but during times of financial crisis, difficulties could arise. "From a spread point of view, it may be fine -- but from the point of view of jump-to-default risk, it's really crazy and exacerbates systemic risk," he said. Risk.net (subscription required)
(3/22)
- Editorial: Regulatory overhaul of derivatives moves slowly
The global financial crisis showed the destructive potential of unregulated derivatives, and yet regulators have been slow to overhaul derivatives rules. "Properly regulated, derivatives -- financial instruments that hedge risk -- help to stabilize the economy," The New York Times argues in this editorial. "Unregulated, they are all too easily converted into tools for vast speculation, as demonstrated by their role in inflating the real estate bubble, amplifying the bust and provoking the bailouts. Unreformed, they will cause havoc again." The New York Times (tiered subscription model)
(3/24)
- Analysis: European banking system faces fundamental questions
The Federal Reserve recently gave most major U.S. banks a clean bill of health and withdrew its extraordinary liquidity measures. The euro zone's banking system, on the other hand, continues to struggle and depends on aid from the European Central Bank. The marked divergence can be explained by the regions' fundamental structures, which differ in multiple ways. The Wall Street Journal
(3/25)
| IACPM News | | |
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- The IACPM adds Roundtable Discussions to its Pre-Conference Day schedule, to be held on May 22 in Madrid
Pre-conference Roundtable Discussions are open to IACPM members attending the General Meeting. The discussion topics include:
- CPM Current Issues: Impact of Liquidity and Regulation
Moderator: Richard Henshall, Westpac
- Securitization after the Regulatory Reforms
Moderator: Casey Campbell and Tamar Joulia, TJ Capital
- CPM for Insurance
Moderator: Alban Fauchere, Ariel Re
- Practioner Forum: Stress Testing Credit Portfolios
Moderator: Som-lok Leung, IACPM
For more information and to register for the General Meeting visit our website at www.iacpm.org.
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| About IACPM |
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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- Tuesday, March 20, 2012
- Tuesday, March 13, 2012
- Tuesday, March 06, 2012
- Tuesday, February 28, 2012
- Tuesday, February 21, 2012
| | | Lead Editor: Sean McMahon
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