SMA, swaps data and EU bank bailouts

The week in, July 7–13 2017

SMA U-turn sparks anger

CFTC swap data problems get worse

BAILOUT LOOPHOLE casts doubt on banking union


COMMENTARY: Low resolution

Three recent European bank rescues should have provided a bit more clarity on how the new regime for handling failing institutions will work in practice. In fact, the reverse seems to have been the case.

Spain’s Banco Popular, which came close to collapse in June, was bought and recapitalised by Santander in a process managed by the Single Resolution Board (SRB) – the implementing authority of the Bank Recovery and Resolution Directive (BRRD). Two smaller Italian banks – Banco Popolare di Vicenza and Veneto Banca – were declared to be “failing or likely to fail” later the same month, but the SRB declined to intervene on the grounds that neither bank’s failure would have systemic consequences. They therefore went through insolvency, but, the SRB having washed its hands of them, the Italian government was able to provide €4.8 billion ($5.5 billion) in liquidation aid to Intesa, which took on their performing assets and liabilities, and made it possible for the bank to avoid bailing in its senior bondholders.

This wasn’t the way things were supposed to go under the BRRD. Questions after the fact focused on the apparent disagreement about whether or not Vicenza and Veneto were systemically important enough to merit saving. The Italian government argued they were, at least to their region; the SRB argued they were not (though, as some observers asked, if they weren’t, why was SRB involved with them in the first place?).

But this may be missing the point. The key to Vicenza and Veneto’s survival was probably that bank bonds are widely owned by Italian retail investors, making a forced bail-in politically explosive. Just as with the rescue of Monte dei Paschi di Siena earlier this year, the latest interventions make clear state aid for failing banks is too powerful a political tool for governments to surrender lightly, however virtuous such a surrender might appear. It might even, some resolution authorities argue, be essential from a financial stability point of view as well, in which case the best move would be to accept it and ensure it at least happens under transparent and comparable rules across the EU. Refusing to accept the existence of political motives and political concerns, grubby though they may appear, would not be a good basis for financial stability.



The lack of energy market volatility has made it harder to assess the risk of almost everything from a short-term trading strategy to buying a pipeline or a generation asset, say modellers. Annualised volatility on UK day-ahead gas, for example, spiked above 250% in 2009, hit almost 150% at the end of 2011, and went over 100% at the start of 2013. But from 2014 to 2016 it went through 50% only once, remaining close to 25% for much of the rest of the period – UK energy regulator Ofgem



“All the recent SMA calibrations since the start of the year have been political negotiations. They started recalibrating over the past few months by negotiating coefficients that will reverse-engineer the numbers they already have” – Evan Sekeris, Oliver Wyman

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