Category Archives: Regulation

Banking Regulators to delay meeting in bid to reach bank capital deal

LONDON (Reuters) – Banking regulators will postpone their next meeting in another bid to agree on global capital rules, taking more time to try to overcome objections from European banks to minimum capital levels, people familiar with the talks said.

The negotiations are being closely watched by thousands of lenders, even though the rules would not come into force until 2024 or 2025, and Standard Chartered said on Wednesday it would not pay a dividend because of the regulatory uncertainty.

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U.S. small business borrowing highest in nearly two years

(Reuters) – Borrowing by small U.S. companies hit a nearly two-year high in June, driven by restaurants and hotels, PayNet Inc said on Tuesday, as businesses invested to meet customer demand.

The Thomson Reuters/PayNet Small Business Lending Index for June rose to 139.9, its highest since July 2015, from an upwardly revised May reading of 138.3.

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Greenspan warns about bond bubble

Greenspan warns about bond bubble

Alan Greenspan, former chairman of the Federal Reserve, says investors shouldn’t be concerned about a bubble in the stock market but should worry about one in bonds. “The real problem is that when the bond-market bubble collapses, long-term interest rates will rise,” Greenspan said.

Are bonds both a liability and an asset of the borrower?

Early this year, Venezuela issued $5 billion in new bonds to a state owned entity to help raise cash needed for essential imports (“Venezuela issues $5bn in bonds as it seeks cash to ease shortages”, Financial Times, January 3, 2017). In June, Venezuela engaged a Chinese securities firm, Haitong, to resell these bonds reportedly at a steep discount of more than 70% (“Venezuela Discounts $5 Billion in Bonds”, Wall Street Journal, June 6, 2017). Soon, a Canadian firm, Crystallex, obtained a restraining order against Haitong, as a first step towards attaching the bonds. (“Crystallex Moves Closer To Collecting $1.2B Venezuela Award”, Law360, July 17, 2017). Perhaps, this time, the courts will actually decide this question as to whether a debtor’s bonds can be treated as its assets and attached by the creditors.

FAST-MOVING MARKETS: REVISITING THE AUGUST 2007 QUANT CRUNCH IN REAL TIME

One of the lessons from the August 2007 “quant liquidity crunch” – now about to mark its 10-year anniversary – was that institutional investors underestimated the speed and magnitude of losses that can take place over very short periods. The challenge that remains for investors today is to find real-time data to help them respond to market events as they unfold. This need for transparency is especially true where fund managers have exposure to factors that may experience high volatility in crisis periods.

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Asian Fixed Income: The Birth of Bond Connect

As a follow up to the previous article, Bond Connect officially launched on July 3, 2017. Bond Connect allows international market participants to trade China’s interbank bonds through the Hong Kong Stock Exchange.  It marked a milestone in China to further open up its capital market, following the China Interbank Bond Market (CIBM) announcement last Read more […]

Basel panel rates China, US as LCR compliant, EU one notch worse

Basel panel rates China, US as LCR compliant, EU one notch worse

Liquidity Coverage Ratios in China and the US are “compliant” with the Basel framework, the Basel Committee on Banking Supervision reported Monday. But the European Union’s LCR is rated only “largely compliant.”

Banks increase CLO forecasts as issuance thrives

Banks are increasing their US Collateralized Loan Obligation (CLO) forecasts with issuance set to surpass some of the most pessimistic 2017 predictions.

The market has defied expectations with issuance this year of US$49bn through June 23, 90% higher than the same period last year, according to Thomson Reuters LPC Collateral. If these revised forecasts are realized, 2017 would be among the top five years of volume ever. Issuance in 2014 of US$123.6bn is the record.

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Aligning SDG Goals – The Next ESG Challenge

The term “sustainable development” has been in existence for decades — 30 years ago, in 1987, the World Commission on Environment and Development proposed developing new ways to assess progress toward sustainable development in the “Brundtland Report.”

Historically, there was a lack of comprehensive goals or targets for “the future we want” and a lack of adequate monitoring of progress toward enduring human and environmental well-being.  This absence of an overarching framework limited the ability to assess progress toward attaining sustainable development.

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When Enough Is Enough: Assessing Credit Risk Of Companies With Incomplete Financials

Risk analysts are often confronted with incomplete financial information when dealing with private corporations, and therefore face gaps in their credit risk analysis. When this happens, some analysts may approximate missing financial values with industry averages, or forego the analysis altogether.
In his latest blog, Giorgio Baldassarri, Global Head of the Analytic Development Group, explains why taking a dual approach to credit risk analysis, that takes into account both the quantity and materiality of the exposures, is encouraged when there are missing financials.
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Green Bonds: Addressing Solvency II Benchmarking Requirements

Solvency II is the new region-wide supervisory framework for insurance and reinsurance companies operating in the European Union.  The new regime includes three pillars, calculation of capital reserves, management of risk and governance, and reporting to the national supervisory authority.  Moving to a risk-based approach in calculating solvency capital requirements (SCR) will require reassessment of investment choice.  Risky assets that will require a higher charge may become less appealing vis-à-vis a low risk asset, despite the expectation of better performance.

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Understanding Drivers Of Credit Risk

Since the introduction of Altman’s Z-score in 1968, there have been many statistical models that combine financial ratios, socio and macroeconomic factors with advanced mathematical techniques to estimate a company’s credit risk. In most instances, they will produce the same, or very comparable assessments; however, at times, due to the different “DNA” of the models, they can (and will) provide divergent credit risk assessments for the same companies.

In his latest whitepaper, Giorgio Baldassarri, Ph.D. discusses the differences and similarities of two of our fundamentals-based credit risk models, and how their outputs can help you distinguish the real drivers of risk.

2017 Retail Bankruptcies Set Record Pace – Which Companies Are Most At Risk?

2017 Retail Bankruptcies Set Record Pace – Which Companies Are Most At Risk?

If bankruptcies continue this year at their first-quarter pace, the Retail sector could join Oil & Gas as one of the most distressed industries of 2017. Already the number of bankruptcies year-to-date has come close to 2016’s total of 18.

In this article, we analyze the major trends converging to cause this march towards possible “Great Recession” credit risk levels in the retail markets, showcasing S&P Global Market Intelligence’s analysis of the 10 most vulnerable public US retail companies using our Probability of Default (PD) Fundamentals model.

How does increased credit risk in the retail sector affect your exposure?

 

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INTEGRATING FACTORS IN THE INVESTMENT PROCESS: A HOLISTIC PERSPECTIVE

A growing number of institutional investors use factor insights, but few take a holistic approach toward integrating them in all stages of the investment process. That is important, given that exposure to systematic drivers, or factors, typically accounts for a significant proportion of portfolio return.

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The Absolute Return Letter, June 2017 Oil Price Target: $0 (by 2050)

‘Everything’ continues to decline – GDP growth, productivity growth, real wage growth, inflation, etc., and the Absolute Return Letter this month is dedicated to exploring energy’s role in this conundrum. We conclude that, unless mankind can come up with a cheaper energy form, GDP growth will ultimately turn negative. The only good news is that there is indeed a solution on the way, even if it is still many years away. The solution is not renewable energy, as you might suspect, but a technology called fusion energy. Enjoy the read!

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WORTHY OF TRUST? LAW, ETHICS AND CULTURE IN BANKING

On 21 March 2017 the BSB held a morning event entitled Worthy of trust? Law, ethics and culture in banking, kindly hosted by the Bank of England. This panel discussion was chaired by BSB Chairman Dame Colette Bowe, and brought together three eminent speakers: Governor of the Bank of England Mark Carney, President and Chief Executive Officer of the Federal Reserve Bank of New York William C Dudley and the Rt. Hon. the Lord Thomas of Cwmgiedd, Lord Chief Justice of England and Wales, to explore an issue of shared importance; the relationship between law, ethics and culture in creating a banking sector that is worthy of trust.

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Credit Markets Rich But Not In A Bubble

The credit markets are sitting at rich valuations but are not in a bubble yet, Oaktree Capital’s Howard Marks told Bloomberg.

“You have to think of the world as rich, fair and cheap. We are in rich territory but I don’t think we are in bubble territory,” Marks, co-chairman and co-founder at Oaktree Capital, said on Bloomberg Daybreak: Americas.

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Financial soundness indicators – looking beyond the lessons learned from the crisis

Keynote address by Mr Fernando Restoy, Chairman, Financial Stability Institute, Bank for International Settlements, at the Users’ Workshop on Financial Soundness Indicators, International Monetary Fund, Washington DC, 26 April 2017.

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