Sefs, CVA rules and new US mortgage fears

The week on, January 6-12, 2018

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Game of Sefs: automation helps Tradeweb topple Bloomberg

Buy side’s desire for lighter-touch trading of interest rate swaps propels Tradeweb to top spot by volume

Soaring Fed Home Loan Bank borrowings spark systemic risk fears

Parallels drawn with Fannie and Freddie as commercial bank borrowing from FHLBs nears $500bn

CVA dismay: final Basel rules disappoint dealers

Minor tweaks don’t make up for removal of internal modelling, say banks


COMMENTARY: Reasons not to be cheerful

The Bank of England welcomed the new year with a paper on measuring market sentiment – be especially wary of an impending crisis, it advised, when the market starts to follow a consensus narrative that everything is going well. It did not extend the argument to the converse: that the market is healthiest when there are several competing narratives that everything is going very badly wrong in different ways.

In the US, fears are growing of another housing-linked financial crisis – the Federal Home Loan Banks have quietly become systemically vital, via their links to government money market funds, and a collapse would be disastrous (though their supporters argue that conservative investment and risk policies make the chance of disaster minimal, despite relatively thin capital cushions).

Or you can look to China, where a lack of independent credit rating information is leading to a DIY approach to bond investing – with a strong element of caveat emptor – even as the country hurries to open up its fixed-income markets to international investors.

And there’s also reason to worry about the hangover from the last crisis – unusually high and stable asset prices belie the reality that the eventual exit from quantitative easing policies will mean sizeable macro risks, one investment manager (and former Fed forex trader) believes.

Meanwhile, action on reforming corporate culture has been far slower, and has run into increasing obstacles as the crisis dwindled in the rear-view mirror. The risk of the large-scale fraud and malfeasance that underpinned the 2008 crisis may not have gone away; in fact it may not even have been reduced.



On December 8, 2017, the country’s banking regulator hit China Guangfa Bank with a 722 million yuan ($111 million) penalty for issuing forged letters of guarantee for defaulted corporate bonds. According to the China Banking Regulatory Commission, six employees at the Huizhou Branch of Guangfa Bank forged the letters of guarantee using counterfeit corporate seals. The activity was designed to help conceal Guangfa’s non-performing loan ratio and operating losses, the CBRC said.



“The FCA has been quite visionary because it has realised you can just keep piling on rules, and smart people will figure out a way around them. A lot of banks in the UK are now focusing heavily on values, and they’re incorporating them in annual performance reviews. It’s not just what you’ve done, but how you’ve done it” – Paul Butler, Catalyst

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