"On banks, as we continue to emphasize, there is scope and cause to increase capital requirements significantly further to reduce systemic risk. As that occurs, regulators will need to redouble their efforts to oversee financial activity by economic function, rather than legal form. Money market mutual funds, repurchase agreements, securities lending, and securitization are part of a wide range of intermediation activities occurring outside of regulated banks. In every case, the overseers of financial safety will need to ensure that these forms of intermediation do not become incubators for systemic risk."
"Bloomberg ran a story last week on derivatives for peer to peer loans. In “Wall Street’s Thinking About Creating Derivatives on Peer-to-Peer Loans,” Tracy Alloway and Matt Scully discuss recent trends by startups to create derivatives based on P2P loans (the title is a bit misleading). On the one hand this is a really interesting idea. On the other, who is going to buy them and how will the collateral quality be tracked?"
"The Texas Windstorm Insurance Association’s (TWIA) latest catastrophe bond issuance is set to become its biggest by a long way, as the Alamo Re Ltd. (Series 2015-1) issuance has grown in size to $700m, while the pricing has been set near the upper end of guidance."
"This paper presents a model of repo rehypothecation in which dealers intermediate funds and collateral between cash lenders (e.g., money market funds) and prime brokerage clients (e.g., hedge funds)."
"The tensions have surfaced on both sides of the Atlantic, with Republicans in Washington protesting over the influence of the Financial Stability Board in Basel, and the Bank of England writing to the Federal Reserve to question Berkshire’s status. They are bound to grow as MetLife, the largest US life insurer, mounts a challenge to being designated as “too big to fail”."
"A pioneer of catastrophe bonds has hit back at claims that the instruments could jeopardise the stability of the global insurance industry, accusing the academics behind the highly critical research of “stoking unfounded fears”."
There’s another set of mortgage rules coming this summer. CMHC sent out a notice recently with implementation dates for three policies related to OSFI’s B-21 guideline.
The price of German 10-year government bonds plunged this week, triggering the biggest rise in yield in over two years. Some analysts blamed the sell-off on a lack of liquidity, with Commerzbank going so far as to call it a "flash crash".
NEW YORK, April 30 (IFR) - Historically low volatility in credit default swap indices offers a cost-effective opportunity for investors to start hedging their bond positions through credit options in case of a liquidity crisis, some strategists say. But with prices failing to reflect any panic, many think it's not worth the trouble - or expense - just yet.
Starting May 1 nationwide, however, some seniors have a new option, one that ties into increasingly popular “peer-to-peer” lending. It’s a family-funded reverse mortgage known as the Caregiver loan. It allows any number of children and grandchildren to pool resources to provide a flexible line of credit at interest rates far below what commercial reverse-mortgage lenders charge and with far fewer hassles. In intra-family lending, there’s no bank or mortgage company. Family members are the bank.
Borrowing an analytical framework from the life insurance and annuity industry where the amount of risk is framed in terms of the total assets required to remain solvent over a one-year period with a high level of confidence, i.e., the economic capital approach, this paper develops a benchmark risk measure for pension sponsors by obtaining a total asset requirement for sustaining the pension plan. The difference between the total asset requirement and the actual trust assets thus provides a measure of sponsor assets at risk due to plan sponsorship
Get that, Congress? Central clearing of derivatives contracts, one of your big reforms, has not eliminated risk; it has just concentrated it. And last time, at least Congress knew that AIG was an insurance company (with an attached hedge fund). Will they understand the function of the CCP(s) that the Fed will have to provide with government cash and collateral the next time volatility gets out of control?
Scientists reported Thursday that they had identified an important new potential driver of aging, a finding that could have vast implications for human longevity and the treatment of diseases such as cancer, diabetes and Alzheimer's.
Our concern has been about the less liquid parts of the market and what happens in a crisis. We all recall that during 2007-10, the implosion of sub-prime was at first seen as contained given its overall size. But uncertainty about who was invested, what banks owned & how much money they lost, and where the next impaired asset class was going to pop up spilled over and liquidity in many products evaporated.
WASHINGTON, April 29 (Reuters) - U.S. regulators on Wednesday re-proposed some rules targeting American and foreign swap dealers that run trading desks on U.S. soil, in a move to clarify which cross-border trades will be covered by certain U.S. regulations.
in the BCBS/IOSCO deadline for the introduction of new collateral management requirements for non-cleared derivatives may have been a welcome move for most of the derivatives industry, Omgeo's Moris Danon urges firms to take advantage of the extra time allotted to ensure compliance is successful and explore some of the challenges firms face as they keep pace with the market changes.
The U.S. Commodity Futures Trading Commission (Commission) today approved for public comment a proposed rulemaking that would reduce reporting and recordkeeping requirements for trade option counterparties that are neither swap dealers nor major swap participants (Non-SD/MSPs), including commercial end-users that transact in trade options in connection with their businesses. The unanimous vote was conducted via seriatim. The proposed rulemaking will be open for public comment for 30 days after publication in the Federal Register.
Liquidnet is preparing to launch a dark pool model to enter into fixed income as the firm had a record first quarter performance in Europe on its equities block trading platform.
Now peer-to-peer lending and its Internet enablers like LendingClub Corp., the industry leader, are being pulled into the high-octane world of derivatives. While many hail Wall Street’s growing involvement, others warn investors could get carried away, as they did during the dot-com era and again during the mortgage mania. The new derivatives could help people hedge their risks, but they could also lure speculators into the market.