Crossing boundaries

Prime brokers are expanding cross-margining facilities to include ever-more exotic products as a means of reducing margin for hedge fund clients. Dealers say the reductions are justified from a risk management perspective, but regulators continue to have misgivings. By John Ferry


Regulators in the US have issued a string of warnings over the past year about the dangers of prime brokers over-aggressively slicing margin requirements for their hedge fund clients. In March, Annette Nazareth, a commissioner at the US Securities and Exchange Commission (SEC), said there was a need for adequate margin requirements to withstand periods of systematic stress. Then, in May, Timothy Geithner, president of the Federal Reserve Bank of New York, called for major dealers to take a "cold

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Credit risk & modelling – Special report 2021

This Risk special report provides an insight on the challenges facing banks in measuring and mitigating credit risk in the current environment, and the strategies they are deploying to adapt to a more stringent regulatory approach.

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The Covid-19 pandemic has induced a kind of schizophrenia in loan-loss models. When the pandemic hit, banks overprovisioned for credit losses on the assumption that the economy would head south. But when government stimulus packages put wads of cash in…

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