ICE targets default risk with credit-swaps futures, sources say | New product helps banks stay within liquidity rules | Bank bonds finally rally
February 5, 2013
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ICE targets default risk with credit-swaps futures, sources say
IntercontinentalExchange intends for credit-swaps futures it has in the works to protect investors from default by underlying borrowers, sources say. The contracts, which might be available in April, are expected to involve companies that are current on debt payments. The credit-swaps futures reportedly will reference Markit Group indexes. Bloomberg Businessweek (2/1)
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New product helps banks stay within liquidity rules
A new product known as "callable commercial paper," sold on behalf of municipalities, is offered by at least two U.S. banks to help them get around new liquidity rules. Financial Times (tiered subscription model) (1/29)
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Bank bonds finally rally
For the first time in five years, yields on bank bonds are close to being lower than yields on comparable corporate bonds. The comparative desire for financial company bonds over corporate paper was the norm before 2007, but after the financial crisis, the industry has been slow to regain its position of debt stability. The Wall Street Journal (tiered subscription model) (1/28)
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China's strained banks face another surge in capital demand
Seven trillion yuan worth of projects approved by China's National Development and Reform Commission in the past few months are expected to put banks' lending capacity to the test this year. The new investment push comes as loan-deposit ratios and capital adequacy ratios are already just marginally within regulatory standards. Caijing Magazine online (1/29)
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Japanese banks expand corporate lending in U.S. and Europe
Banks in Japan are increasingly stepping in to satisfy loan demand by U.S. and European businesses. The Bank for International Settlements says Japan is steadily increasing its share of global lending, accounting for about 10%, compared with 6% shortly before Lehman Brothers Holdings collapsed in 2008. The Wall Street Journal (tiered subscription model) (1/29)
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S&P: Chinese investment poses "highest risk" of correction
China's high ratio of investment to gross domestic product points to the possibility of a correction, according to a report by Standard & Poor's. "What we found is that China has the highest risk of an economic correction because of low investment productivity over recent years," credit analyst Terry Chan said. "We believe the level of a country's investment overhang can be a leading indicator of a potential economic correction." China Daily (Beijing) (1/31)
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CreditSights is the premier provider of independent credit research in the Capital Markets, producing analysis that is globally respected for its integrity and quality. Our analysis spans 40 industries and is focused on U.S. & European High Grade/High Yield issuers and in the last six months we have begun to roll out Asian companies coverage. Click here to learn more.
Regulatory and Accounting Issues
Basel Committee's RWA findings worry banks
The Basel Committee on Banking Supervision has finished a risk-weighted-asset evaluation of trading-book positions, finding a huge variation among banks' valuation methods. Risk-weighted assets are a major factor in determining how much capital banks are required to keep on hand. Banks fear the large discrepancy in their methods will result in a call for significant reform, which would force them to keep even more cash on hand. Bloomberg (1/31), (subscription required) (1/31)
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BIS: Buffers are more important than activity separation
Jaime Caruana, general manager of the Bank for International Settlements, says "higher capital and liquidity requirements are more important for stabilizing banks than the separation of proprietary trading and deposit-taking business." He also says the euro-zone crisis might not be over, despite a positive outlook. Reuters (2/4)
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ESMA allows some short selling but not naked sovereign CDSs
The European Securities and Markets Authority decided to exempt market makers from some tougher rules pertaining to short selling. However, ESMA didn't bend on trading of naked sovereign credit default swaps. Bloomberg Businessweek (2/1)
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Proposed EU swaps rules hit a hurdle in committee
The European Parliament's Economic and Monetary Affairs Committee has voted down draft rules for over-the-counter derivatives. The outcome, which was expected, hinged on lawmakers' concerns that the rules would create an undue burden on businesses and would run counter to EU law. The vote is expected to further delay plans to establish mandatory clearing of more OTC derivatives. The full Parliament could take up the matter this week. If the measure fails there, too, policymakers will have to start over. Bloomberg Businessweek (2/4), Reuters (2/4), Financial Times (tiered subscription model) (2/4)
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Derivatives sales violated rules, U.K. study finds
The U.K. Financial Services Authority found through a pilot study that 90% of 173 interest-rate hedging products were sold without regulatory compliance. Among the violations: Clients were not told about exit costs; there were mismatches of amounts and durations with underlying loans; and sellers, including Barclays, HSBC Holdings, Lloyds Banking Group and Royal Bank of Scotland, never got an assurance that customers understood the risk involved. As a result, the FSA is ramping up enforcement. International Financing Review (free content) (1/31), The New York Times (free-article access for SmartBrief readers)/DealBook blog (1/31), Bloomberg (1/31), The Wall Street Journal (tiered subscription model)/Dow Jones Newswires (1/31)
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Commentary: Macroprudential market supervision may be doomed to fail
So-called macroprudential supervision -- including measures such as bank capital, liquidity and leverage standards, collateral requirements and loan-to-value limits -- may be insufficient to prevent market meltdowns, many argue. The problem is the complexity of markets and their tendency to treat such measures as merely new price information. Nonetheless, most believe such measures are worth trying. (subscription required) (1/29)
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Save the Date for IACPM's Spring Conference -- May 22-23 in London
IACPM Annual Spring Conference will be held May 22 to 23, 2013, at the InterContinental London Park Lane in London, U.K. The preconference day, May 21, will feature our Educational Seminar, the only one of its kind specifically geared toward Credit Portfolio Management professionals. More information will be available soon on our website,
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To attain knowledge, add things every day. To attain wisdom, subtract things every day."
-- Laozi,
Chinese philosopher
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