Term RFR, new VAR and the end of venture capital

JP Morgan warming to derivatives-based term RFR rates

Risk Live: Unlike Libor, the market has a say in them. (Though they may not be real term rates, executive muses)

Ice, CME set to launch new VAR models in early 2020

Bourses plan to switch margining of energy futures at different times, prompting speculation of “arbitrage opportunities”

Basel’s unlikely victim: venture capital

Changes to credit risk framework could block alternative path for EU banks to finance SMEs

COMMENTARY: The aftershocks continue

Twelve years have passed since the event that marked the start of the global financial crisis – the collapse of two Bear Stearns hedge funds with heavy subprime exposure. The industry continues to reshape itself in response, often in unexpected ways. This week, Risk.net looked at some of the areas where the tremors of 2007–09 have yet to die away.

A change in the Basel credit risk rules could be a serious problem for the venture capital sector. Banks will now have to hold almost three times as much capital against investments in venture capital funds, as their risk weighting rises from 150% to 400%. The argument here is that this will harm small businesses as well – loans to low-rated corporate borrowers remain at a 150% weighting, but debt financing isn’t always available to SMEs, which lack useful collateral against which to borrow.

The rise of agency brokers such as JB Drax owes much to advances in electronic dealing technology, but it also has its roots in the post-crisis layoffs of senior, and expensive, bank sales staff. Meanwhile, new bank capital rules have also blurred the lines between banks and non-banks, opening the banks up to new competition – and, sometimes, new partnerships.

And the European Securities and Markets Authority, itself a post-crisis creation, is using the vast quantities of data collected under (widely resented) post-crisis regulations to improve oversight and transparency, in the hope of spotting future instabilities coming.

These are a few of the most direct after-effects on the financial sector of the crisis. But they aren’t the most important. The subprime crisis became a banking crisis, and the banking crisis a global recession. Its macroeconomic effects continue to be felt and, it could be argued, the crisis spurred a significant change in the political landscape.

Governments across the developed nations fell – only one pre-crisis head of government, Germany’s Angela Merkel, held on to power. The rise of populist parties across Europe owes a great deal to the imposition of austerity policies in the wake of the crisis. Governments across the Middle East were overthrown – the civil wars still underway in Libya, Syria and Yemen have at least some of their roots in the economic stress the recession created. The financial sector and the rest of the world will be working through the after effects of 2007 for many years to come.

STAT OF THE WEEK

Systemically important European Union banks could see their minimum capital requirements surge by 29% under the full Basel III rules, a capital shortfall of €82.8 billion, a study by the European Banking Authority (EBA) has concluded.

QUOTE OF THE WEEK

“Tell me, who do you think writes these statements? Why do you think it says ‘more deference’ between the CFTC and the EU, and not the other way round? You fell for it” – Patrick Pearson, European Commission, flaring tensions between European and US supervisors on the subject of cross-border clearing house oversight.