Preparing for pressure
A jump in credit and equity market volatility last month could signal the end of a sustained period of market calm. How are dealers positioned to deal with severe market stress? Christopher Jeffery reports
Investment banks have not faced any major stress in the financial markets for more than 18 months. The last jump in equity volatility was sparked by the Madrid bombings in March 2004 and it was barely noticeable. While some dealers suffered losses from the interest rate spike in the third quarter of 2003, overall losses to the financial community were limited. Meanwhile, credit spreads have contracted sharply since the slew of defaults in 2000/01.
This lack of volatility in the three largest
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