Risk magazine - May 2023
In this issue: the burden of bank runs, securitisation scraps, flummoxed by FRTB; and much more
Cover detail:
Yuen-Ching Lisa Ling
Roots, acrylic paint, Chinese ink on canvas
lisaling51@gmail.com
Articles in this issue
In bank runs and market crashes, it matters how ideas ‘catch’
Contagion episodes show importance of network effects in finance
CVA desks avoided re-hedging as Credit Suisse teetered
As credit spreads blew out, dealers opted not to adjust rates and FX risks
JP Morgan is testing quantum deep hedging
Researchers say timeline has shortened for use of models in production
ARRC relaxes limits on trading term SOFR derivatives
Updated usage guidelines allow hedge funds and fixed rate issuers to hedge with forward rate
How Man Numeric found SVB red flags in credit data
Network analysis helps quant shop spot concentration and contagion risks
The tweet and the trust collapse: how banks can fall on a dime
In March’s market contagion, experts see lessons in the rapid erosion of confidence
Why tougher liquidity rules may not reduce the risk of bank runs
EU regulator and industry experts say LCR reform is the wrong response to Credit Suisse and SVB
Did US hedge accounting rules contribute to SVB’s recklessness?
Hedging and directional risk-taking was a problem, but FASB regime may have complicated matters
SEC securitisation rule could hamper interest rate hedging
ABS participants say breadth of resurrected 2011 proposal creates compliance minefield
Why US bank regulation needs a system upgrade
SVB collapse shows supervisory framework is not fit for a changing industry and new systemic risks
Zero-day options and the shadow of the apocalypse
For some, 0DTEs could spell doom in adverse market conditions; others dismiss such talk as dramatics
Why KfW revived an old idea for cross-currency collateral
Transport currency concept re-emerges at SwapAgent, but dealers warn of hidden FX risks
Banks find new uses for discarded FRTB models
Much-maligned IMA models are being upcycled and repurposed for internal risk management
Banks look back in anger as FRTB revives 1990s risk test
Institutions bemoan need for parallel framework to measure portfolios’ sensitivities to market moves
US falls behind in race to match Europe’s FRTB launch date
Recent US bank failures could jeopardise planned January 2025 start date for Basel III
Isda’s fork provision gives crypto market plenty to chew over
Not everyone is happy with the discretion new digital definitions offer to calculation agents
Crypto custody faces regulatory death-roll
New measures to safeguard digital assets threaten to squeeze the life out of custody business, insiders fear
Token effort is no blockchain boon for illiquid assets
Cash-like tokenised instruments find takers; initiatives based on less liquid assets struggle to take off
Beyond trustless: strong governance in crypto is needed
To build trust, the crypto ecosystem can borrow proven governance principles from TradFi
Op risk data: Wells Fargo whacked for Wachovia lapse, and a Ponzi slap
Also: Long and winding road to the end of Credit Suisse; Swedbank IT fails. Data by ORX News
Managing a high-inflation environment with clearing
Recent geopolitical events, macroeconomic forces and market disruptions have created significant challenges for the investment community. LCH explores how clearing can help market participants manage inflation.
Hear no EVE, see no EVE
The Fed chastised SVB for poor rate-risk monitoring, but most US banks’ disclosures remain focused on earnings alone
BNP Paribas takes €403m hit unwinding TLTRO hedges
Tightening of ECB facility’s terms throws wrench into interest rate risk strategy
US regionals remain laggards on EVE measure
Majority of lenders in Q1 did not report key metric that could have detected SVB’s risks
SVB salvage lands First Citizens with $18bn of FX contracts
Bank now holds seventh-largest stack of non-trading currency derivatives in the US
Client margin for swaps hit all-time high in March
Wells Fargo, Goldman and BNP Paribas reach record figures, but overall trend driven by five big dealers
Western Alliance’s rate-risk gauge breaches internal guidance
EVE depletion for 100bp and 200bp hike scenarios highest disclosed by any US regional bank
How banks can avoid bad haircuts on hedge fund trades
HSBC quant makes case for looking at collateral and funding rates in concert
The carbon equivalence principle: methods for project finance
A method to price the environmental impact of financial products is proposed
How MerQube sold Wall Street on open indexing relationships
Four-year-old Silicon Valley firm sees growing role for third parties as indexes become more complex
