Risk magazine - Aug 2017
August issue highlights include: doubts about the post-Brexit status of LCH could trigger a mass migration of cleared risk; the hidden dangers in popular short-vol products; pushback from exchanges and prop traders on new EU capital rules; and why banks and insurers are flying blind when it comes to cyber risk modelling.
Articles in this issue
Mixed motives threaten messy outcome in euro clearing row
Stability, oversight, Parisian ambition, repo haircuts: LCH is under attack from all sides
Dislocation policy: LCH exodus risks CCP basis blow-out
Questions about post-Brexit status of UK CCP could spark mass migration – and severe volatility
Mifid II cost disclosures pose risk to liquidity, warn banks
Dealers hope standardised methodology for some clients could mitigate impact
Swaps users face potential margin bill for Libor transition
New margin rules could snare legacy trades amended to reference alternative rates, lawyers warn
Twin member default would hit up to 23 CCPs
New FSB analysis reveals interdependencies of clearing system
CCP margin backtests can hide flaws, research finds
In richer test, ‘filtered’ VAR beats five other measures
E-trading boosts mid-tier banks in rates and credit
New technology helps Natixis and Mizuho compete with major dealers in swaps and bonds
EBA urges European banks to step up IFRS 9 preparations
Banks not yet in testing phase face 32 basis point extra capital hit, report finds
EU money fund rule threatens negative rates management tool
Constant net asset value funds may have to change format during prolonged spells of negative rates
CFTC to review swap data reporting regulations
Rule changes could be proposed as early as fourth quarter of 2017
HSBC’s model risk chief departs
Exit follows February reshuffle of UK lender’s global risk analytics unit
People moves: Hassani leaves Santander for CapGemini
Citi makes several hires; new Americas head for Barclays; ADS Securities names new COO
EU prop firm capital crunch could hit market liquidity
Traders claim they would be put out of business by bank-style capital rules
Complex short Vix products draw fire as vol plumbs lows
Hedging effects mean popular exchange-traded products vulnerable to big losses if volatility spikes
Will private credit go from boom to bust?
It is the acceptable face of shadow banking. But is too much money chasing too few opportunities in private credit?
Repeal CEM; reform SA-CCR
Capital framework hurts clearing resilience, Citi execs argue
Modelling cyber risk: FAIR’s fair?
Proponents say factor analysis can be applied to cyber risk; detractors retort results are still guesswork
Cyber insurers accused of lax underwriting standards
Loss data becoming more granular and diverse, but critics highlight pricing inconsistencies among underwriters
Bank cyber chiefs grope for sound risk models
Vast scope of threats makes modelling unfeasible, say practitioners
Stage fright: banks tackle IFRS 9 loan-loss volatility
Banks look to counter volatility of loss provisioning through careful calibration of loan buckets
Holes in the net: lawyers split over China netting opinions
Law firms are offering close-out netting opinions, but not everyone agrees it is possible
Bailout obsession holds back US CCP resolution regime
Dodd-Frank leaves legal uncertainty, but proposed alternatives could be even worse
No safety net: EU urged to accelerate bail-in buffers
Without MREL or TLAC, governments are at mercy of private buyers for failed banks
Public interest loophole casts doubt on EU banking union
Bondholders face fresh uncertainty about European use of bail-in, critics warn
Falling margins force energy firms to expand data use
Verification and model challenges arise as volatility and margins dry up
Commodity swap data goes from bad to worse
Lack of regulatory guidance, collaboration and market confusion continue to plague SDR reports
Monthly credit data review: the Amazon effect and a rising Russian state
David Carruthers of Credit Benchmark looks at bank, sovereign and corporate credit risk data
Monthly swaps data review: analysing CCP and Sef volumes
Data shows strong growth at LCH and JSCC, while OIS products surge
CCP stress testing gets real
Quants propose technique to generate effective, plausible CCP stress-testing scenarios
Extremely (un)likely: a plausibility approach to stress testing
CCP’s risk managers propose a framework for generating extreme but plausible stress scenarios
Local-stochastic volatility: models and non-models
Lorenzo Bergomi exposes a condition important to the use of LSV models in trading
BNY Mellon’s Neal on funding, liquidity and collateral
Markets head Michelle Neal says firm has “big responsibility” after JP Morgan’s tri-party repo exit
