On Dec. 9, 2014, the Basel Committee on Banking Supervision published a consultative document on its proposed net stable funding ratio (NSFR) disclosure standards, under which banks will disclose the proportion of their long-term assets that are funded by long-term, stable funding. The committee intends to introduce the NSFR as a minimum standard by Jan. 1, 2018. The main purpose of the NSFR is to reduce refinancing risks for banks by requiring them to better match their asset and liability profiles, while allowing banks to perform maturity transformation that serves economic needs. The disclosure standards aim to improve transparency and enhance market discipline. In this article, we provide our analytical opinion of the proposed disclosure standards based on our understanding of the document.
With an eye on what lies ahead for the industry in 2015, SmartBrief conducted an e-mail interview with Jeffery Weaver, Chairman of the International Association of Credit Portfolio Managers. Mr. Weaver is an Executive Vice President and Group Head of CPM at KeyCorp.
The role of Credit Portfolio Managers in the management of credit exposures has evolved since the end of the Great Recession and one of the most significant changes is the expansion of regulation. How has this heightened regulatory scrutiny changed the role of risk management?
The role of credit portfolio management has become more strategic to the firm as the perpetual assessment of emerging risks and their potential impact on the credit portfolio is under taken.
The Asian Institute of Chartered Bankers has just published “A Best Practice Approach to Modeling Sovereign Defaults” in the December 2014 issue of its Banking Insight magazine. Since the article, which I co-authored with my colleagues Suresh Sankaran and Dr. Clement Ooi, was targetted toward the Asia market, it is helpful to emphasize some of the most important points in modeling sovereign default risk from a world-wide perspective. There are three key points in modeling sovereign default risk that we explain in the rest of this article:
- The credit default swap market is a very problematic source of credit information and, at best, it is reliable only for a short list of reference names.
- The conflict of interest faced by legacy rating agencies is even more extreme in the sovereign case than it is in the well-documented corporate and structured products markets.
- Modern statistical modeling techniques are best practice and the only realistic alternative to the credit default swap market and legacy credit ratings.
We outline the reasons for these assertions in the rest of this note. Read more
Upcoming Webinars : The good, the bad and the ugly of Indian Real Estate in 2015 – 2022
On 25 Mar, 2015 From 1:30 PM – 2:30 PM (UTC +05:30) India Time Zone
25th March 2015, 1:30 PM (IST), 3:00 PM (JKT), 4:00 PM (SGT) onwards
• What will drive the next wave of returns for Real Estate Investors
• Diamonds in the rough – Subsectors which will thrive over the next decade
• Distressed investing – How to spot the winners
• Learning lessons for Indian Real Estate Investors from the last decade
Mr. Om Chaudhry
Present: Founder and CEO, FIRE Capital Fund Private Limited
Past: Feedback Ventures
Mr. Chaudhry is the Chief Executive Officer (COO) of FIRE Capital Fund, the real estate centric private equity fund that has created several joint venture companies across the country to deliver a total built up area of nearly 40 million sq.ft. over more 1200 acres. Under his leadership, FIRE Capital has pioneered the concept of SUV (Satellite Urban Village) that aims to provide international quality urban housing while tackling the challenges on the ground thrown by the limited urban infrastructure available in these cities. Through this model, FIRE Capital has focused its attention on Value Housing for the consuming class and has a preference for locating its projects in Tier II cities.
Before starting FIRE Capital, Om was a partner at Feedback Ventures, a leading Indian consultancy group with the largest number of professionals dedicated to new ventures in the infrastructure sector. He has also handled projects across a wide range in the real estate domain – residential, commercial, retail, hospitality, industrial and healthcare – across the spectrum of consulting to operationalization.
Mr. Chaudhry has a B. Tech. degree from the Indian Institute of Technology, Delhi and an M.B.A. from the Indian Institute of Management, Ahmedabad.
|Co Speaker : Manoj Dassani
Present: Chief Operating Officer (COO), FIRE Capital Fund Private Limited
Past: DNA Infrastructure Pvt. Ltd, D Group International, Feedback Ventures among others
Mr. Dassani has over 22 years of experience as a consultant, entrepreneur and business leader in various industries, prominently construction and infrastructure. He was the CEO at DNA Infrastructure Pvt. Ltd, a company engaged in execution of EPC contracts related to water supply and road projects.
He was also the owner/director at D. Group International Pvt. Ltd, a Government recognized export house for home furnishing and garments. He also worked as senior manager at Feedback Ventures & Collaboration Services Pvt. Ltd – a management consulting firm focused on implementation of projects, primarily real estate and infrastructure
Mr. Dassani has a B. Com (Hons) from Shri. Ram College and an MBA from IIM-Ahmedabad.
Corporate bond returns in 2015 have thus far seen pronounced swings between safe and speculative-grade debt from one month to another, with speculative-grade bonds faring better in February. In this CreditMatters TV segment, Standard & Poor’s Senior Director Nick Kraemer summarizes the experiences of various corporate bonds last month.
As the economic landscape in emerging markets evolves, we looked at some of the region’s rating stress indicators and their recent performance. In this CreditMatters TV segment, Associate Director Gregg Moskowitz explains the key trends.
This month, we added five Greece-based entities to the weakest links list. Four ‘CCC+’-rated banks and one ‘B-‘ rated utility sector company were placed on CreditWatch negative as the European Central Bank decided to lift the waiver on the eligibility of Greek government bonds in euro-system operations
Seven years after the bursting of a global credit bubble resulted in the worst financial crisis since the Great Depression, debt continues to grow. In fact, rather than reducing indebtedness, or deleveraging, all major economies today have higher levels of borrowing relative to GDP than they did in 2007. Global debt in these years has grown by $57 trillion, raising the ratio of debt to GDP by 17 percentage points (Exhibit 1). That poses new risks to financial stability and may undermine global economic growth.
In the past week, I have spoken with many regulators and bankers on the proper role of intuition in the econometric estimation of credit models for the Federal Reserve’s Comprehensive Capital Analysis and Review 2015. In our review ofbest practices for stress testing , value at risk, and credit value at risk on October 20, 2014, there was no role for “intuition,” just for science. The same is true for our November 13, 2014 update of model validation procedures for CCAR 2015
Why? In quotes from Kathryn Schultz, Nobel Prize Winner Daniel Kahneman, and Professors King and Soneji below, we explain that the very DNA of human beings leads us to be overconfident in our own intellectual powers. Rather than relying on modern econometric methods, most humans would rather guess an answer and would normally be supremely confident in its accuracy.
The Federal Reserve will announce the results of the “DFAST” stress tests on March 5. On March 13, 2014, we pointed out the many reasons why the Federal Reserve-mandated stress testing process will be a less accurate measure of financial institutions’ risk than the market’s price on those institutions’ promise to pay a dollar in the future. The market place considers all scenarios, not just three as in the Fed’s CCAR stress tests. The market place invests cold hard cash to price various financial institutions’ promises to pay.
In the stress testing process, those who prepare the stress tests are often in a conflict of interest position, since it normally serves them best financially if the CCAR results are prepared on the sunny side of the street. In this note, we update our results from January 27, 2015 with the bond market assessments of financial services firms whose bonds were traded in the U.S. corporate bond market on Monday, March 2. Many of the firms whose bonds are traded are not subject to the stress testing process, so a bond market analysis gives us a broader and more comprehensive risk assessment. We use 5,383 trades on the bonds of 127 different legal entities in the financial services industry with underlying principal of $1.8 billion to rank those firms by riskiness. We rank the institutions by credit spread, by spread to the U.S. Dollar Cost of Funds Index, and by “best value,” which we define as the ratio of credit spread to matched maturity default probability.
Conclusion: 25 financial institutions led by Berkshire Hathaway Finance Corporation (BRK.A) (BRK.B) have a better spread to the U.S. Dollar Cost of Funds Index TM than the best of the four “too big to fail” financial institutions in the United States, which we define as the grouping including Bank of America Corporation (BAC), Citigroup Inc. (C), JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC).
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10.00 a.m. – 1: 00 p.m.(followed by lunch)
Please join us for a seminar where Standard & Poor’s ratings analysts and industry experts will share their views on major credit trends and outlook for India Inc..
About Standard & Poor’s:
Deutsche Bank’s global co-chief executive Jürgen Fitschen said the greatest risk to Asian economies in 2015 is a potential interest rate hike in the US, which may result in disruptive capital flows back into the world’s biggest economy.
The housing boom that preceded the Great Recession was due to an increase in credit supply driven by looser lending constraints in the mortgage market. This view on the fundamental drivers of the boom is consistent with four empirical observations: the unprecedented rise in home prices and household debt, the stability of debt relative to house values, and the fall in mortgage rates. These facts are difficult to reconcile with the popular view that attributes the housing boom to looser borrowing constraints associated with lower collateral requirements. In fact, a slackening of collateral constraints at the peak of the lending cycle triggers a fall in home prices in our framework, providing a novel perspective on the possible origins of the bust. Read more
|(Talk by Dr. Raghuram G. Rajan, Governor, Reserve Bank of India at the Third Dr. Verghese Kurien Memorial Lecture at IRMA, Anand on November 25, 2014)|
Due to increasing interaction across the fixed income market sub universities Mirabaud’s Global Strategic Bond Fund aims to provide a value driven best ideas portfolio using a concentrated and top down thematic approach.
With a robust investment process and active allocation our experienced top quartile managers aim to achieve superior returns with strict attention to capital preservation. Whilst index aware we are not index led and actively manage duration and credit exposure across all business cycles.
Our webinar explains the background to Event Shortfall, considers some of the practical implications of measuring and managing these risks, and reflects on the viewpoint of industry figures.
It has often been said that those who fail to learn from history are doomed to repeat it. The global project finance sector can perhaps be included among those who have learned from experience. The sector learned some hard lessons in its pioneering days, such as how to counter market exposure risk–the biggest cause of default–and how to strengthen a project’s structure to provide the necessary… More
Growing need of Credit Skills – Video talk by Sandip Ghose, Director NISM
Download the presentation by Mr. Jagannadham Thunuguntla
Head of Research, SMC Global Securities Ltd