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December 27, 2012
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  Credit Markets 
  • Bank of England says funding scheme working
    The Bank of England's Funding for Lending Scheme to reduce bank funding costs is showing preliminary signs of effectiveness, it said in its Quarterly Bulletin. While recent declines in wholesale funding costs have fallen since the program began Aug. 1, "It is still likely that for most banks the FLS provides an attractive source of funding,” according to the article, and analysts expect it to eventually boost consumption and investment. Bloomberg (12/18) LinkedInFacebookTwitterEmail this Story
  • Banks are making risky loans to indebted firms, OCC says
    U.S. banks are lowering lending standards to make more risky leveraged loans to companies with high debt, the Office of the Comptroller of the Currency says in a report. Banks are letting borrowers take on greater debt and approving deals that give lenders limited protection if the borrower doesn't stay current on payments, the regulator says. The Washington Post (12/20) LinkedInFacebookTwitterEmail this Story
  • Corporate bond returns set to drop in 2013
    Corporate bonds are unlikely to yield the impressive 9.6% returns from the U.S. and 13.3% returns from Europe that they saw in 2012, The Wall Street Journal analyst Richard Barley writes, so investors might want to look to Spanish and Italian corporate bonds for high yields in the coming year. He also recommends examining subordinated European bank and insurance debt. The Wall Street Journal (12/26) LinkedInFacebookTwitterEmail this Story
  • China curbs bond issuance by companies with high debt
    China has moved to ban companies with high debt-to-asset ratios from issuing corporate bonds, though there are some exceptions. The move is intended to tamp down the risk of default. The Shanghai Securities News reports that $554 billion in corporate bonds were issued through November. That's a 77% increase from the same period in 2011. The Wall Street Journal (12/21) LinkedInFacebookTwitterEmail this Story
  • New focus on clearinghouses raises concerns for some
    Clearinghouse say the new system mandating derivatives clearing will be able to withstand nearly any shock, but other market participants are unconvinced, warning that the situation will concentrate risk. "Clearinghouses have been oversold as a way of preventing Armageddon," said Craig Pirrong, a finance professor at the University of Houston. A clearinghouse is unlikely to fail, but Pirrong says "the possibility that taxpayers could be at risk" remains. Bloomberg (12/21) LinkedInFacebookTwitterEmail this Story
  • Bond experts fear Fed's new approach could increase volatility
    The Federal Reserve's announcement that it would tie interest rates to unemployment is drawing concern from some market experts who say investors may begin to overreact to sometimes volatile data points. "As the economic data come out now, the market is going [to] extrapolate those short-term fluctuations. It could create opportunities, but there is a possible impact as well," said Robert Tipp, Newark, N.J.-based managing director and chief investment strategist at Prudential Fixed Income. "If they come out with hard criteria, that will inject a lot of volatility into the market." Pensions & Investments (free registration) (12/24) LinkedInFacebookTwitterEmail this Story
  Regulatory and Accounting Issues 
  • CFTC delays derivatives rules for foreign banks
    The Commodity Futures Trading Commission has given foreign banks until mid-July to comply with derivatives-trading rules. "The relief period provides time for the Commission to work with foreign regulators as they implement comparable requirements," CFTC Chairman Gary Gensler said. Bloomberg (12/22), Reuters (12/21) LinkedInFacebookTwitterEmail this Story
  • FASB proposal would cause banks to set aside higher reserves
    The Financial Accounting Standards Board has proposed a rule for accounting for credit losses that would result in banks, financial firms and companies that offer financing having to increase their loan-loss reserves as much as 50% and recognize losses from nonperforming loans faster. The rule would call for them to estimate expected credit losses and set aside reserves based on those projections. The Center for Financial Research and Analysis said in a research note that the model could give companies more discretion in determining loan losses and "create a powerful earnings management tool." The Wall Street Journal/CFO Journal (tiered subscription model) (12/21), Accounting Today (12/20) LinkedInFacebookTwitterEmail this Story
  • BoE to invite comments on central counter-party risk standards
    The dealer community and other market participants will be given an opportunity to offer their views on central counter-party (CCP) risk to the Bank of England, said Edwin Schooling Latter, head of the BoE's payments and infrastructure division. "We will undoubtedly do a better job as supervisors if we not only listen to the directors and operators of financial market infrastructures, but also to their participants," he said at a BofE event. "I'm sure all the FMIs in the room will agree with that." (subscription required) (12/19) LinkedInFacebookTwitterEmail this Story
  IACPM News 
  • IACPM survey on synthetic bank balance sheet securitization now available to members
    Last spring, the IACPM conducted a survey on synthetic securitizations used by banks to manage balance sheet risk, in support of advocacy work with the SEC. The survey is now available to member firms via the link here (login to the members' section of the IACPM web site required). IACPM member surveys are immediately available to firms who participate in the survey, and then posted to the IACPM web site with a six month lag. LinkedInFacebookTwitterEmail this Story
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He who has imagination without learning has wings but no feet."
--Joseph Joubert,
French essayist

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