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
US G-Sibs had $73 billion worth of structured notes outstanding in total on September 30, 2015. Of this amount, $37 billion is set to remain outstanding as of January 2019 when the first phase of the TLAC requirement is scheduled to enter into force – all $37 billion would be ineligible for bail-in under the Fed's proposal.
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.
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