The gap between investment-grade corporate bond yields and the cost of hedging against default in the derivatives markets highlights investors' apprehensions about a resurgence of market volatility due to the coronavirus.
Companies dealing with the challenges of the ongoing coronavirus pandemic are increasingly faced with credit downgrades that move them from an investment-grade to the non-investment-grade category. So far, most companies have been able to maintain a BBB rating.
Some banks are selling their Paycheck Protection Program loans to non-bank entities eager to garner the business. New York's The Loan Source, which was formed specifically to deal with PPP loans, purchased 20,000 loans from 14 lenders and expects to purchase more.
Intesa Sanpaolo's planned merger with Unione di Banche Italiane proves bank consolidation in Europe is possible, Rochelle Toplensky writes. However, obstacles remain, such as uncertainty over the quality of banks' loan books amid the coronavirus pandemic.
The Federal Reserve has unveiled the amount of extra capital required of the largest banks included in the 2020 stress test, which had found they would withstand heavy capital losses. The common equity Tier 1 capital requirement comprises a minimum CET1 capital ratio of 4.5% and the "stress capital buffer" requirement, plus potentially a surcharge for the eight global systemically important banks in the US. This marks the first time the Fed has imposed bespoke capital requirements, which apply starting Oct. 1.
Providing banks regulatory relief is an essential policy response to the COVID-19 crisis but one that creates a number of prudential oversight challenges, warns the Financial Stability Institute. This paper notes the most pressing of these challenges will be managing the withdrawal from these support measures.
A buy-side risk survey found that the coronavirus disruption caused 87% of investors to turn to creative stress-testing, using custom scenarios to get through the selloff in March. Only 67% said the value-at-risk statistical method was useful during the crisis.
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