Cypriot rescue includes haircut for bank depositors | BIS expresses concern about markets' stimulus reliance | Experts expect derivatives clearing to surge
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March 19, 2013
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Cypriot rescue includes haircut for bank depositors
Cypriot President Nicos Anastasiades said in a televised address that he has no practical alternative to applying a haircut to bank deposits as part of a €10 billion rescue by the eurozone. As partial compensation for the loss, depositors will receive bonds linked to natural gas revenue, he said. Kathimerini (Greece) (3/17), Spiegel Online (Germany) (3/16), Cyprus Mail (3/17), Reuters (3/16), Financial Times (tiered subscription model) (3/18)
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BIS expresses concern about markets' stimulus reliance
Central banks in Europe, Japan and the U.S. have kept interest rates low, implemented asset-purchase programs and taken other steps to calm financial markets and buy time for governments to make changes to spur growth. However, the Bank for International Settlements is concerned about markets' reliance on such stimulus. "The fact that market dynamics have become ever more dependent on central bank and government stimulus is a cause for concern," said Stephen Cecchetti, head of the BIS Monetary and Economic Department. Reuters (3/17)
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Experts expect derivatives clearing to surge
More than $500 billion of swaps have been routed through clearinghouses since rules requiring clearing of certain derivatives trades went into effect on Monday. Some industry experts, however, say that may be only the beginning. "Whilst the numbers look impressive today, these things can build very rapidly," said Michael Davie, CEO of LCH.Clearnet Group's SwapClear unit. The Wall Street Journal/Dow Jones Newswires (3/14)
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Regulatory and Accounting Issues
Regulator will consider simplifying Basel III
Criticism that Basel III rules, which require banks to hold more capital against possible losses, are too complex is prompting the Basel Committee on Banking Supervision to re-examine the rules. "A vigorous public debate has developed recently as to whether the Basel regulatory framework strikes an appropriate balance among different desirable characteristics: simplicity, comparability and risk sensitivity," Chairman Stefan Ingves said. Reuters (3/12), Bloomberg (3/12), The Wall Street Journal/Dow Jones Newswires (3/12)
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Basel panel reportedly will address banks' leverage ratio
The Basel Committee on Banking Supervision is set to delve into the leverage ratio for banks amid concerns about lenders' calculations, sources say. Banks are concerned about the how the ratio is designed. "The Basel Committee really needs to look at how the rule is going to affect different business models," said Jouni Aaltonen, a director at AFME. Existing proposals would mean "client-facing commercial banks are hit harder by the rule than interbank broker-dealers." Bloomberg (3/12), Reuters (3/12), The Wall Street Journal/Dow Jones Newswires (3/12)
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Short-term bank creditors could face losses under EU plan
EU plans for handling the failure of banks had shielded short-term liabilities, but a proposal would impose losses on such creditors before tapping taxpayers. A document prepared by Ireland says debt with the same level of seniority should be treated as equally as possible, although it allows exceptions. Bloomberg (3/13)
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Regulator sees need for more capital at some UK banks
Andrew Bailey, head of the UK Prudential Regulation Authority, has told Parliament's Treasury Select Committee that some banks need more capital. "I agree there is a need to strengthen the capital position," Bailey said. He declined to go into detail but said he has not requested a capital injection for Royal Bank of Scotland or Lloyds Banking Group. Reuters (3/14), The Guardian (London) (3/13)
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BIS pushes bigger benchmark-rate role for central banks
The Bank for International Settlements has released a paper suggesting that the London Interbank Offered Rate and other benchmark rates should be replaced with rates that are based on actual bank transactions. The BIS also says central banks should have a bigger role in the process. "It is clear that central banks must play an important role in supporting the development of alternative reference rates," BIS Chairman and Bank of England Governor Mervyn King said. Reuters (3/18), Bloomberg (3/18)
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Europe must form banking union and bolster banks, IMF says
The International Monetary Fund is urging Europe to begin developing a banking union and shore up financial institutions. "Risks remain elevated, especially in a context of low growth and fiscal retrenchment," according to the IMF. "Regulatory and policy uncertainty, and gaps in policy frameworks also continue to pose vulnerabilities. Further ambitious steps are thus necessary to rebuild confidence and achieve long-lasting financial stability in the region." Bloomberg (3/15), CNNMoney (3/15), Reuters (3/15), The Wall Street Journal (3/15)
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Finding common regulations for U.S., EU insurers is a dilemma
The U.S. and EU aren't making much progress in their efforts to come up with a common regulatory system for insurers. Meanwhile, a global regulatory system envisioned by the International Association of Insurance Supervisors based in Basel, Switzerland, could throw regulators on both sides of the Atlantic into turmoil. Risk.net (subscription required) (3/18)
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Fitch: Bank reserves to be hit by FASB loan impairment proposal
If a Financial Accounting Standards Board proposal on the treatment of credit losses for loans is implemented, bank reserves and earnings could come under pressure, Fitch says. The FASB's loan loss model could require U.S. banks to report asset values more conservatively than foreign financial institutions, according to Fitch. Accounting Today (3/13)
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IACPM News
2013 IACPM Annual Spring Meeting, May 22-23, London
Join the 40 firms already registered to attend and participate in our Annual Spring Conference! The meeting offers two days of Plenary and Stream sessions, roundtable discussions for members, a cocktail reception and dinner, sponsored by Moody's Analytics, and much, much more. The agenda, as it now stands, is public and can be downloaded here.

Highlights from the agenda are all-day stream sessions on:
  • Evolution of CPM
  • Counterparty Risk and CVA
  • CPM Applied Topics
  • The New Regulatory Environment
  • Credit Markets and Alternative Capital Sources
The IACPM offers a discount for early registration until April 15, and group rates are offered to members. To register and for more information about the meeting, please visit our website at www.iacpm.org.
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-- H.L. Mencken,
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