Financial institutions ill equipped to deal with credit risk developments, says D’Silva
The changing attitudes to credit risk among banks amounts to a "cultural revolution", Adrian D'Silva, director of capital markets supervision for the Federal Reserve Bank of Chicago, told delegates at a credit risk management conference in Vienna today. But many financial institutions are ill equipped to deal with the changes, he warned.
The increase in the types of firms using credit derivatives over the past few years has also brought new risk management issues to the market, D’Silva told delegates at the conference, organised by Toronto-based risk management technology vendor Algorithmics.
"We spoke with two insurance companies that have been involved in credit derivatives," D'Silva said. "When they talked about the size of their exposure it came as a shock to us. They weren't doing too well handling this and that's why they came to us."
D’Silva’s remarks are a reminder that regulators have become worried about the ability of insurance companies to effectively manage credit derivatives. In a speech in January, Howard Davies, head of the UK’s Financial Services Authority, quoted an investment banker who had quipped that synthetic collateralised debt obligations and other derivatives used by insurers are “the most toxic element of the financial markets today”.
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 print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Regulation
SEC streamlines overhaul of stock trading rules
Tick size and access fee rules simplified from first draft, but Peirce still questions rationale
Supervisors use generative AI to tame ‘chaotic’ data
Officials merge credit databases with unstructured reports to sharpen bank oversight, explains Banco de España ex-deputy
EU banks fear loss of NSFR repo relief
European Commission must decide by next June; other jurisdictions adopted softer calibration
Running the numbers on Barr’s Basel III endgame revisions
Fed vice-chair’s plan to ease capital requirements for big banks still lacks critical details
Endgame manoeuvre: US banks put SLR reform back in spotlight
Plan to ease Basel III brings renewed focus to impact of leverage ratio on US Treasury market
Regulators want to fix AT1s. Investors want restraint
Tweaking the instrument that regulators love to hate may be the only way to prevent its abolition
More disclosure touted to temper pre-hedging ills
Transparency could help investors choose a dealer, but will they use the disclosures?
Fed’s Basel III rollback gives clearing units a capital break
Client-cleared trades will be exempt from CVA charges and G-Sib surcharge calculations, says Barr