Risk magazine - Jan 2020
In this issue: sticky issues for a post-Libor US; CVA exemptions cause more confusion; review of 2019; and much more
Articles in this issue
EU compounding confusion creates headaches for banks
With the fallback possibly illegal in some EU states, loan system updates may become more complicated
Final Volcker rule spurs rethink on FRTB trading desks
Regulators encourage structural alignment between the two rules, but hurdles remain
Sonia users push for official in-arrears rate
US Fed proposal for compounded SOFR index leads to calls for endorsement of NatWest’s Sonia calculation
SEC derivatives rule may lead to new products
Proposed VAR limit is expected to benefit risk parity and defined outcome strategies
Smaller Japan banks set to adopt CVA accounting
IFRS convergence levels playing field as regional banks start to price in credit risk
Risk weight tweak could fix IFRS 9 capital clash – research
Practitioner suggests way to cancel out double-counting of Basel credit loss provisions
Banks step up stress-testing of Hong Kong dollar peg risk
Flurry of forex options trades makes banks re-evaluate exposures
First Ibor versus SOFR cross-currency swap trades
Westpac and Citi strike BBSW/SOFR trade in landmark moment for Australian market
EU snubs plan to delay CCP open access rules, for now
Attempt to squeeze delay into crowdfunding rules fails, but Mifid review provides last chance
Isda to poll Libor users on pre-cessation triggers, again
Trade body seeks clarity on zombie lifespan and CCP response as it bows to regulatory pressure
Korea autocallables under threat from draft rules
Autocallable volumes could suffer as mis-selling fallout spreads to equity-linked structures
US firms must rerun non-cleared margin test in March
Proposed CFTC calculation delay offers in-scope firms chance to trade out of phase five compliance
People moves: NatWest Markets in senior shake-up, and more
Latest job changes across the industry
In the US, it’s an even ‘tougher legacy’ for Libor
A legislative solution for cash products is in the works, but lawyers say it raises constitutional issues
US sidetracks bid to end European CVA exemption
Fed’s change to SA-CCR capital renews EU industry calls to preserve carve-out
Quant funds look to AI to master correlations
Machine learning shows promise in grouping assets better, predicting regime shifts
Bank disruptors: tread carefully and bend things
How BofA, SocGen, JP Morgan, Nomura, UBS and others are disrupting themselves
Bank disruptors: Barclays finds blockchain nirvana
USC could transform financial markets. But first, backers must prove it is secure
Bank disruptors: SocGen’s call to start-ups
Fintechs and ‘intrapreneurs’ are leading Societe Generale’s digital transformation
Bank disruptors: how tech joint ventures help Nomura’s bottom line
Nomura is developing new software services to supplement trading profits
Bank disruptors: a ‘token’ effort from UBS
The utility settlement coin will kick-start trading of digital assets, says Chris Purves
Bank disruptors: BofA’s ‘citizen devs’ take on innovation mantle
Central data and technology group enables frontline ‘citizen developers’
Bank disruptors: JP Morgan smashes silos
To foster innovation, the US banking giant rebuilds its culture by breaking boundaries
Bank disruptors: Crédit Ag taps AI to lure swaptions business
Machine learning model predicts client demand with high accuracy, giving traders an edge in pricing
Review of 2019: shaken, not stirred
The market survived a cocktail of hits. But is a hangover on the way?
The human touch: SMCR extension reaches smaller firms
Extended to nearly 50,000 firms, UK regime aims to pinpoint responsibility, from money laundering to #MeToo
Outsourced model validation: is it viable?
Consortium promises cost savings in outsourcing model validation, but some say pooling doesn’t float
Trading venues decry disruptors as MTF battle heats up
Unregulated tech vendors accused of operating as de facto venues; a claim dismissed as “entirely outrageous”
Mifid’s free data mirage vexes markets
Users struggle to access post-trade data despite European regulator’s push for transparency
Fed’s rush to complete stress buffer likely to unnerve banks
Quarles wants to include it in 2020 CCAR cycle, making bank capital planning difficult
Stock-picking finds unlikely champion in ex-Winton CIO
Matthew Beddall’s Havelock restyles value investing for the big data age
Ready or not – a low-carbon economy is coming
Government and business must avert disorderly move away from fossil fuels, says Geneva Association’s Maryam Golnaraghi
When a lapse in concentration is no bad thing
Fortifying too-big-to-fail firms to withstand future crises could make the entire system more vulnerable
EU derivatives markets highly concentrated
CCPs hold 41% of interest rate derivatives notional exposures
Four UK banks improve resilience to stress tests compared with 2018
Aggregate CET1 capital ratio headroom over hurdle rate improves by 50 basis points
FRTB to double market RWAs of EU banks
Risk-weighted assets across 44 banks to increase 105% on average
Op risk modelling limited to largest EU banks
Smallest banks do not use AMA at all
New CVA regime to hike affected RWAs fivefold at EU banks
Systemically important lenders face 622% increase in CVA RWAs; but effect could be less if existing exemptions are carried over
How US G-Sibs shrink down at year-end
Derivatives exposure reductions make up bulk of year-end savings
Own-country risk makes up 42% of EU bank sovereign exposures
Polish, Estonian and Romanian banks most exposed to home governments
EU life insurers’ solvency ratios decay in first half
Aggregate SCR ratio for life undertakings down 9%, Q2 2018–Q2 2019
Leveraged loan risks concentrated in handful of banks – FSB
US lenders make up 55% of exposures among global banks
SocGen leads EU banks on trading asset gains – EBA
Almost three-quarters of H1 2019 income came from gains on trading assets at French bank
Op risk data: Brazil bank faces near-$1bn tax probe fine
Also: UBS hit for $77m for spread hikes; PPI costs top £50bn. Data by ORX News
Credit data: the retail apocalypse continues
Consumers are spending, but brick and mortar retailers continue to struggle
Swaps data: have SOFR and Sonia swaps and futures lived up to expectations?
Progress on volumes of SOFR and Sonia swaps and futures
Small, speculative clearing members – are they worth the risk?
CCPs need new tools to scrutinise their members, for everyone’s good health
One bad apple: default risk at CCPs
One clearing member's disproportionately large position increases the credit risk for all CCP members
The homotopy analysis method for derivatives pricing under wrong-way risk
Derivatives pricing is approximated with a computationally efficient homotopy-based application that accounts for WWR
Intercept: AQR’s risk-catching machine
CRO Mike Patchen has helped build a system to identify risks before they grow or spread
