
Libor, capital requirements and regulatory priorities
The week on Risk.net, March 4 - 10, 2016

LIBOR replacements could be forced onto OTC market
AMA replacement "will harm op risk management"
BLIND SPOTS around algo trading and market crises, BoE's Fisher warns
COMMENTARY: Missing the goal
Regulators around the world have pinned their hopes of preventing another catastrophic financial crisis on sweeping capital reforms: for banks, it means a big cut in risk sensitivity of the rules; for insurers, it means the opposite. Both approaches were being questioned this week.
In the field of op risk, bank regulators finally unveiled long-flagged proposals to bar the advanced measurement approach (AMA) that allows approved banks to use their own models to calculate capital requirements. The models have proved incapable of coping with post-crisis conduct risk losses. But whole careers have been built on the AMA, and its mooted replacement – the standardised measurement approach (SMA) – was immediately panned by the industry.
"If they just wanted something simple so they can compare the banks, maybe they have achieved it... But if they wanted to protect the system I'm not sure there is really any added value," said Santander's head of non-financial risk methodologies.
Plans to ditch the AMA were first revealed by Risk.net in October 2015.
Research published on Risk.net this week also casts doubt on the effectiveness of the Basel III leverage ratio. Invented as a backstop to prevent the collapse of major banks, it is currently set at far too low a level to make a real difference to the chance of a collapse, according to ex post analysis of 30 European banks. Even doubling it from 3% to 6% would leave the banking system far more risky than regulators intended.
And in the UK, the Prudential Regulation Authority has warned that brand-new Solvency II risk-based capital rules threaten to make the insurance industry more pro-cyclical and less stable – echoing concerns over pro-cyclicality already expressed by insurers and regulators late last year.
STAT OF THE WEEK
QUOTE OF THE WEEK
"My nightmare is that we wake up one morning and we find out that somebody has just switched off the very core of the financial system. This is something I was worrying about when I was in office and it remains apt a few years later" – Paul Tucker, chair of the Systemic Risk Council and former deputy governor of the Bank of England.
ALSO THIS WEEK
EC urged to target initial margin for CCP recovery
Irish central banker says haircuts should be seen as temporary loans to CCPs in a crisis
South African banks may pool quants to tackle FRTB
Senior trader fears banks don't have quant resources to meet FRTB deadline
Banks save €3.5bn in swaptions compression drive
Capitalab removes €1.3 trillion notional, cutting capital requirements
Liquidity obsession 'irrational', says UK rail pension head
Chief executive of railways pension group says cost controls more important
Life firms irked by patchy matching adjustment approvals
UK regulator could have been more clear about success of bolder submissions, say advisers
SGX hopes to shake up LNG market with new index
Asian LNG traders voice cautious optimism about ‘Singapore Sling' spot-market index and derivatives contracts
CME set to launch swaptions clearing in Q2
Banks say the incoming uncleared margin rules are the driver behind the move, which may also even up the CME-LCH basis
SEC in wait-and-see mode on CDS clearing mandate
Industry sources that have met with the agency claim it has "no plan" for mandate
LME Clear ‘welcomes scrutiny' of CCP risk management
Oversight from clearing members is good for central counterparties, says LME Clear CEO
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on 7 days in 60 seconds
Bank capital, margining and the return of FX
The week on Risk.net, December 12–18
Hedge fund losses, CLS and a capital floor
The week on Risk.net, December 5–11
Capital buffers, contingent hedges and USD Libor
The week on Risk.net, November 28–December 4
SA-CCR, SOFR lending and model approval
The week on Risk.net, November 21-27, 2020
Fallbacks, Libor and the cultural risks of lockdown
The week on Risk.net, November 14-20, 2020
Climate risk, fixing Libor and tough times for US G-Sibs
The week on Risk.net, November 7-13, 2020
FVA pain, ethical hedging and a degraded copy of Trace
The week on Risk.net, October 31–November 6, 2020
Basis traders, prime brokers and election risk
The week on Risk.net, October 24-30, 2020