Risk magazine - Sept 2022
In this issue: the revealing tale of Three Arrows Capital’s collapse; why the Fed’s Michael Barr must tame DC’s warring regulatory factions; Archegos revives trade-booking row from beyond the grave; and much more.
Cover detail: Phoenix in the Void, Acrylic on Canvas, 24x18cm.
Contact: Anne-Marie Bainbridge, www.anne-mariebainbridge.co.uk
Articles in this issue
Banks shock commodities by 1,000% in stress-test rethink
Energy price spikes force clearing firms to consider extreme or even ‘implausible’ scenarios
Buy-side retreats to ‘dirty’ CSAs amid collateral crunch
Repo market fears prompt insurers and pension funds to revert to bond collateral
‘Repo by the minute’ could reshape lending – but not quite yet
Blockchain-based platforms from JP Morgan and Broadridge offer smart contracts that enable intraday repo
Margin costs leap on Simm rejig and rates hikes
Acadia finds roughly one-third jump in exposure following Simm recalibration, with higher funding costs adding to burden
Credit markets falter as dealers slash inventory
Net negative sell-side bond positions exacerbate price gapping and settlement failure
Esma warns new foreign clearing house rules could backfire
Löber says euro swaps trading may move away from CCPs that face toughest EU scrutiny
EU Parliament creates multiverse of SA-CCR outcomes
Some MEPs want to ease rules further than EC draft; others want return to undiluted Basel text
Credit checks, what credit checks? How crypto lending ate itself
Collapse of hedge fund Three Arrows Capital exposes “sloppy and irresponsible” credit standards among crypto lenders
Counterparty credit risk: special report 2022
This Risk.net special report contains a collection of articles that consider the impact of SA-CCR and how banks are adapting to the new regime, as well as the challenges of managing counterparty credit risk and reducing the cost of trading over-the…
Quiet man: is Michael Barr the Clark Kent of regulation?
A decade after crafting Dodd-Frank, Fed’s new vice-chair must tame DC's warring regulatory factions
Archegos revives Lehman-era trade booking controversy
Experts debate whether defaulted TRS positions should have become house exposures immediately
Banks temper credit loss models by editing Covid narrative
Faced with geopolitical chaos and signs of recession, expected credit loss models need to adapt fast
Pension buyouts: rock-bottom prices mask unease over risk
US insurers will digest $40bn in pension assets this year but tight pricing and an economic downturn could lead to reflux
US Treasury market preps for reporting showdown
Sifma expected to attack transparency plans; prop traders brand objections “crazy”
‘Monster’ rally shows junk index isn’t what it was
Speed of recovery reflects structural and technical changes in US high yield
Return of volatility revs up FX options market
Macro disruption hikes volatility for eager dealers, however liquidity and spread compression remain a concern
Pick a lane: Anna DSB to rival CDM coded swaps reporting?
Dual machine-executable rules are set to create choice – and maybe bifurcation – for swaps reporting
Bingeing on block sets: DLT could give FX its ‘Netflix moment’
Blockchain’s proponents say faster settlement times make technology akin to TV’s streaming revolution
Machine learning models: the validation challenge
Machine learning models are seeing increasing demand across the capital markets spectrum. But how can firms improve their chances of gaining internal and regulatory approval for these type of models?
Net-zero pledges bring big unknown for credit risk
Uncertainty on how governments plan to curb emissions adds political dimension to credit quality assessments
PNC, Truist most reliant on tailored LCR requirements
Liquidity ratios would be below regulatory minimum without Fed's cap for regional US banks
Norway oil fund marks down Russia stocks by 87%
Country’s sovereign wealth fund moved equity holdings to lowest level of fair-value hierarchy
JP Morgan’s VAR multiplier increases following Q2 breach
Citi also reported one backtesting exception but kept VAR-based market risk capital requirement flat
ING’s market RWAs jump 30% as FX positions breach waiver limit
Increase arose from stricter EU rules under which FX exposures qualify as structural hedges
LME member default fund contribution jumps 89%
Following record-breaking margin breach in Q1, the CCP plumped up its line of defence
China Merchants’ real estate NPLs double in H1
Some 3% of property development loans were non-performing, double the end-2021 level
Financial services firms take a wider approach to managing digital risk
As well as creating efficiencies and opportunities, digital transformations create more concentrated and interconnected risks for financial services firms. In a recent Risk Live panel session sponsored by ServiceNow, experts discussed how they are…
Should you hedge or should you wait?
New paper introduces quantitative framework for optimal FX hedging
Market-making by a foreign exchange dealer
An optimal liquidity model for pricing and hedging decisions is presented
Optimal exercise of callable bonds
Citi quants and structurers present a term-structure model for callable bonds' work
Podcast: the remaining challenges for Libor transition
Rates quant says swaptions fallbacks turn cash-settled vanilla products into exotics
