BIS cautions over rising assets when outlook is less than rosy | Asian banks step in to fill void left by Europe's lenders | Banks turn to structured vehicles due to low interest rates
December 11, 2012
IACPM SmartBrief

Credit Markets
BIS cautions over rising assets when outlook is less than rosy
Noting the glow on markets worldwide even as the economic outlook darkens, the Bank for International Settlements is raising the possibility that asset prices may once again be overinflated. Market gains also appear to defy recent profit warnings in the U.S. and Europe. "Unusually, equity and fixed income gains coincided with a weakening of the global economic outlook. In the past, falling growth forecasts have usually been associated with rising expected default rates and higher bond yields," the BIS said in its quarterly report. The Telegraph (London) (tiered subscription model) (12/9)
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Asian banks step in to fill void left by Europe's lenders
The funding gap left when European banks scaled back their international activities has been filled by Asian banks. As of this year's second quarter, Japanese banks had expanded their foreign claims in the emerging Asian Pacific area by $100 billion, compared to their activity just before the Lehman Brothers collapse, according data from the Bank for International Settlements. MarketWatch (12/9)
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Banks turn to structured vehicles due to low interest rates
With continued low interest rates, U.S. banks boosted structured finance investment holdings to $48 billion in the third quarter, the most since 2009, according to the Federal Deposit Insurance Corp. Financial Times (tiered subscription model) (12/9)
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Regulatory and Accounting Issues
Study: Banks are well short of Basel III capital ratios
European banks account for more than half of an estimated €474 billion global shortfall to meet capital ratios under Basel III, according to The Boston Consulting Group. Half of banks do not meet minimum ratios, the consultancy says. Financial News Online (U.K.) (subscription required) (12/5)
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Basel liquidity rule could be relaxed to help global recovery
Global bank regulators are expected to wrestle this week with the question of whether to water down a liquidity rule that has been criticized as a potential obstacle to economic recovery. European Central Bank President Mario Draghi has warned that the liquidity coverage ratio could restrict interbank lending. Bloomberg Businessweek (12/9)
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CRD IV exemptions could compromise Basel III compliance
EU compliance with Basel III could be in jeopardy because of a long list of national exemptions to Capital Requirements Directive IV. "If you look at what is being proposed at the moment and is stuck in trilogue, it is national specificity after national specificity," said European Parliament member Kay Swinburne. "There is no common rule book; we shouldn't be kidding ourselves that we are actually adhering to international standards as proposed by Basel." (subscription required) (12/5)
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UK, US offer joint plan for "too big to fail" banks
For the first time, US and British regulators have made public their common view of how to cope with financial institutions considered "too big to fail". The US Federal Deposit Insurance Corp. and the Bank of England discussed the problem in a joint paper. "We believe that, for many [global systemically important financial institutions], this strategy holds the best possibility of preserving stability while removing taxpayer support," Martin Gruenberg, chairman of the FDIC, and Paul Tucker, deputy governor for financial stability for the Bank of England, write in the Financial Times. "It holds shareholders, creditors and management in a failed GSifi accountable for its losses." The Telegraph (London) (tiered subscription model) (12/10), Financial Times (tiered subscription model) (12/10)
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Regulators take closer look at risk-weighted assets
As risk-weighted assets take on greater importance in determining banks' capital requirements, regulators are starting to doubt whether it is a good idea to let banks determine the riskiness of their assets. The Bank of England's Financial Policy Committee recently warned that banks might have understated capital needed by as much as £35 billion. The Economist (free content) (12/8)
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European insurers fear fragmentation of Solvency II
The proposed phased implementation of Solvency II could undercut the goal of a harmonized regulatory scheme and lead to a fragmentation of the effort, European insurers warned. The trade body Insurance Europe is worried that national insurance supervisors might start taking regulatory matters into their own hands on a piecemeal basis. (subscription required) (12/10)
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Insurance companies prepare for new derivatives rules
Derivatives are essential to the business of life insurance companies and they are getting ready to comply with the new rules governing how derivatives are traded. Insurers expect they will be required to hold higher quality assets for use as collateral in derivatives transactions than they have in the past. (subscription required) (12/11)
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Trends in CPM
Basel III requires firms to analyze enterprise-level risk
Liquidity risk will be reported in a new way under the requirements of Basel III and that, in turn, means financial firms will find it necessary to manage risk on an enterprise-wide basis. Banks have to model cashflow in ways not possible under traditional analytics, said David Little, strategy and business director for Calypso. Structured Credit Investor (U.K.) (12/4)
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Mark your calendars for IACPM's Annual Spring Conference -- London -- May 22-23
The IACPM Annual Spring Conference will be held May 22 to 23, 2013 at the InterContinental London Park Lane in London, UK. The preconference day, May 21, will feature our Educational Seminar, the only one of its kind specifically geared toward Credit Portfolio Management professionals. Also on the preconference day are a number of roundtable discussions on topics of particular interest to our members, free of charge, for those who register for the conference. More information will be available soon on our website
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Put a grain of boldness into everything you do."
-- Baltasar Gracián,
Spanish writer
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