Leverage, credit risk and algorithmic trading


LEVERAGE RATIO increase is not a done deal yet

CREDIT RISK may rise if internal models are scrapped

CFTC worries energy firms with automated trading proposal


COMMENTARY: Levering up

Proposed changes to regulatory leverage requirements came under fire this week, with US Federal Deposit Insurance Corporation (FDIC) vice-chairman Thomas Hoenig castigating the Basel Committee for its plans to introduce a risk-based element to leverage ratio calculation. In proposals released earlier this month, the Basel Committee suggested various ways of raising the leverage ratio for systemically important banks – the US has already imposed its own supplementary leverage ratio for its largest banks. But Hoenig says history has shown the danger of relying on risk capital modelling techniques, and a risk-based approach to counterparty risk would be just as bad. European regulators are also hesitant to make the move, and research published by Risk.net earlier this year cast doubt on whether an increase would improve bank resilience.



Proposals requiring banks to assume higher default risks for their least risky corporate borrowers will affect up to €72 billion in risk-weighted assets at 15 of Europe's largest banks, according to data collected by Risk.net



"The balance in access has changed. Traditional hedgers that would have historically led the market now find themselves one millisecond or many nanoseconds behind financial market participants" – Thomas Coyle, general manager at grain trader Nidera


Getting in shape for the FRTB has to start now
Many banks are lagging behind when it comes to ensuring they are fit for the new trading book regime

EU benchmark proposal may hit commodity index publishers
Platts fears indexes will be ‘less robust' due to provision on supervised entities

Correlation of op risk losses could send capital soaring
BB&T auditor's model shows capital measured by LDA might be pushed up by 16–55%

Mifid II transparency rules shake up bank commodity desks
Role of voice set to dwindle, while e-trading sparks worries of predatory algos

IFRS 9 loss rules distracting banks from models and data
Banks neglecting necessary work on data and model governance, warn tech vendors

Japan struggling with negative rate impact on swaps
Dealers facing issues with collateral interest payments and loan mismatches

PRA frets about Solvency II internal model 'drift'
Bank-style leverage ratio for insurers one option being discussed

Internal model use may decline under FRTB, banks say
"The jury is still out on whether internal models are worth the effort" – HSBC's Jenkins

India joins global move to tighten CCP capital standards
Putting CCP capital on the front line is a prerequisite for the EU granting clearing equivalence



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 copy this content. Please contact info@risk.net to find out more.

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here