Appetite for European bank debt returns | Derivatives market continues to contract, BIS says | Goldman is on lookout for Asian bond bubble
November 20, 2012
IACPM SmartBrief

Credit Markets
Appetite for European bank debt returns
After avoiding European banks for months, fund managers are eagerly buying their bonds. Issuers are taking advantage of the demand. This year, European banks have sold nearly €250 billion in unsecured debt, Dealogic says. The New York Times (free-article access for SmartBrief readers)/DealBook blog (11/15)
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Derivatives market continues to contract, BIS says
The market for over-the-counter derivatives shrank 1% in the first half of 2012 compared with the second half of 2011. It was the second straight half-year contraction, according to the Bank for International Settlements. Total notional value came in at $639 trillion, compared with $648 trillion at the end of 2011. The market peaked in June 2011, at $707 trillion. International Financing Review (free content) (11/13)
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Goldman is on lookout for Asian bond bubble
A flood of capital into Asian bond markets during the past year might be creating a bubble, according to Goldman Sachs Asset Management. "If bond demand continues at these levels and distorts prices for a long period of time, the likelihood of asset bubbles increases," said Owi Ruivivar, a senior fixed-income portfolio manager. "The main issue with this increased flow of funds chasing emerging-market bonds is that prices do not fully reflect economic fundamentals." Bloomberg (11/15)
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Asian banks may walk away from U.S. derivatives trading
The uncertainty, ambiguity and complexity of complying with the Dodd-Frank Act might convince Asian banks that trading with U.S. entities that might bring it under the law's requirements is more trouble than it is worth, Asian sources said. In September, CME Group said the Asian over-the-counter has enough liquidity to run efficiently without the participation of any U.S. players. (subscription required) (11/19)
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Bank regulators urged to impose controls on risk modeling
Steve Bennett, executive director for the Pan-European Credit Data Consortium, said bank regulators should place some limits on the kinds of risk modeling that can be used by financial institutions to calculate their risk-weighted asset numbers. "To create a more level playing field, regulators have to come to the conclusion that they will have to set firmer guidelines for RWA estimation and they are in the process of examining bank practices," he said. (subscription required) (11/14)
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CLOs carry inherent danger again
Collateralised loan obligations have bounced back, but market participants say CLOs might be getting more dangerous as managers invest in riskier assets to extend the life of funds. Financial Times (tiered subscription model) (11/14)
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Regulatory and Accounting Issues
EU lawmakers struggle with Basel III
Key divisions remain after several meetings by EU lawmakers regarding draft law to require banks to increase capital and liquidity, calling into question a year-end deadline. "I would suggest you take a look at the calendar. I think it's quite obvious that Jan. 1 is quite dubious at the moment," said Philippe Lamberts, a member of the European Parliament's negotiation committee for the legislation. The Wall Street Journal (tiered subscription model)/Dow Jones Newswires (11/13)
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Deploy Basel III quickly and globally, German regulator says
Elke Koenig, president of German financial regulator BaFin, says the best way to implement Basel III is quickly. Koenig says criticism of the rules, years in the making and designed to avoid another global meltdown, has surprised her. "There is no way around introducing Basel III as swiftly as possible, and I mean globally," she said. Reuters (11/19)
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Proposed capital-rule exemption creates stir in Europe
Controversy is brewing in Europe over a possible exemption for setting aside capital when trades involve sovereign entities and corporations. Uncertainty on whether the exemption will be in final rules is putting a strain on banks that are trying to price swaps transactions. Essentially, dealers complain that they are having to place bets on the outcome of closed-door negotiations. (subscription required) (11/15)
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Barnier will question U.S. about Basel III postponement
Michel Barnier, the EU's internal-market commissioner, plans to discuss US regulators' decision to delay implementation of Basel III with US authorities. "I plan to make formal approaches to the American authorities," Barnier said. "Here in Europe, we have decided to reinforce the solidity of our banks for our own sake." The Wall Street Journal (tiered subscription model)/Dow Jones Newswires (11/19)
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IOSCO: Banks should offer more info on securitized debt
The International Organization of Securities Commissions says banks should hand over more data on securitized debt to investors so they can conduct stress assessments. "IOSCO considers that investors should be able to test whether future cash flows generated from underlying pools" of assets in securitized products would "pay investors in full and on time," the group said. Bloomberg (11/16)
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FSB seeks controls on shadow banking
The Financial Stability Board issued a proposal to regulate shadow banking, worth an estimated $67 trillion last year. "The objective is to ensure that shadow banking is subject to appropriate oversight and regulation to address bank-like risks to financial stability emerging outside the regular banking system while not inhibiting sustainable non-bank financing models that do not pose such risks," according to the FSB. Google/Agence France-Presse (11/18), Bloomberg (11/18), Financial Times (tiered subscription model) (11/18)
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Editorial: 2 derivative rules before CFTC are paramount
The Commodity Futures Trading Commission has two derivatives rules on its plate that the industry is challenging. The first would push transactions to open electronic platforms, which is expected to increase transparency but decrease profits. The other would make U.S. law trump foreign rules when the U.S. law is stricter. This editorial argues for both rules to be implemented. The New York Times (free-article access for SmartBrief readers) (11/17)
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Thank you
The IACPM thanks all of its Members, Sponsors and the many Speakers who participated in our 2012 Annual Fall Conference last week. They all helped to make the meeting a success. All conference participants will receive a link to the presentations in the next couple of days.
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A good man with a good conscience doesn't walk so fast."
-- Georg Büchner,
German writer
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