Risk magazine - Nov 2023
In this month’s collection: BoE criticised for LME meltdown; op risk benchmarking survey; repo ructions; and much more
Cover detail: Samuel Deacon, Pumpkin Patch, 60cm x 45cm,
Plaster, cracking and sand paste with acrylic on canvas
Contact: Anne-Marie Bainbridge, www.anne-mariebainbridge.co.uk
Articles in this issue
SEC to delay US Treasury clearing mandate, dealer rule
A final vote on proposed US Treasury market reforms is now expected in early 2024
Don’t count on repo to monetise liquidity books, say experts
QT could force banks to sell bonds during stress, underlining need for fair value accounting
JP Morgan pulls plug on deep learning model for FX algos
US bank turns to less complex models that are easier to explain to clients
Swiss autocalls ‘10% away from disaster’ as Roche shares slide
Popular ‘worst-of’ products flirt with downside barriers, but issuers see no cause for hedge alarm
Quants look to language models to predict market impact
Oxford-Man Institute says LLM-type engine that ‘reads’ order-book messages could help improve execution
Emmi consults on axing ‘expert judgement’ for Euribor
Level 2.3 inputs extrapolated from term version of €STR will replace internal bank estimates
ECB wading into active account dispute on clearing – industry
Industry lobbyists decry secretive (allegedly ECB) non-paper that recommends high minimum thresholds
Investors cheer Fed guidance on bank credit risk transfers
Institutions say clarification of regulations could jump-start US market
People: Tomczyk in, Tilly out at Cboe, Sibbern moves to Six, and more
Latest job changes across the industry
Welcome to a new ecosystem for managing credit risk
How Eurex is using credit index futures to build the next frontier for exchange-traded derivatives
Nickel odium: critics pan BoE role in LME meltdown
Last year’s nickel fiasco calls into question effectiveness of UK supervisory model – and of central bank’s part
How repo roll risk could spoil US Treasury basis trade
Financing worries emerge as popular trade becomes increasingly reliant on overnight repo
US takes scissors to repos. In Europe, it’s not cut and dried
Stateside banks fear disadvantage over haircut rules that EU sees as not ready to implement
As banks limit FRTB model use, outputs get more volatile
Risk managers say selection of stress window becomes more sensitive if fewer desks are on IMA
Roll up for the BoE’s counterparty mystery tour
Letter warns of cross-currency repo risks, but they didn’t feature in Archegos or LDI blow-ups
Mission-critical risk frameworks vital for navigating volatility
Financial markets in 2023 have been marked by heightened volatility, and driven by economic uncertainty, geopolitical tension and technological disruption against a backdrop of digitisation. As the repercussions of bank failures and rising defaults…
Op Risk Benchmarking, round II: helping lenders borrow
From KRIs to four-eye checks, how do op risk frameworks at regional and domestic banks stack up?
Execution & process errors: banks try to get beyond blunderdome
Mistakes mean more data for reporting, models and scenarios. But do banks learn from them?
Up to their necks in it: banks wrestle with change management
Banks recognise risks in transformation, but struggle to measure them
On cyber risk, regionals have no appetite for disruption
Smaller lenders fear outages and other IT bungles, as do regulators. So, what are they doing about it?
Maximum insecurity: banks tool up to meet cyber threat
Lenders confront “existential” threat of data leaks with bigger teams and better controls
Barking bank watchdogs don’t need to bite
Regional banks add staff, layer up controls to mitigate compliance risks
AI in risk management: one giant leap forward or a risk too far?
As technology advances at lightning speed, AI brings its own, not inconsiderable, risks. How, then, are today’s risk managers using AI tools to their best advantage – and what threats do they face along the way? In a Risk.net webinar, sponsored by FIS,…
Can CCPs provide a port in a storm for securities lending?
Basel III, T+1 and EquiLend scandal all incentivise clearing, but also disintermediation
Buy side reflects on BoE’s gilt liquidity lifeline
Lending facility could prevent repeat of last year’s LDI crisis if properly designed, pension and insurance experts say
How patchy liquidity is stymieing systematic credit
…and what investors like AllianceBernstein, Man Numeric and Acadian are doing about it
Court showdown looms for SEC private adviser rules
Legal victory for the regulator would establish new powers of prohibition, critics claim
Off target: SEC dealer rule will hurt those it aims to protect
Regulator’s plan could harm US Treasury markets and make it costlier for Americans to borrow, says Don Wilson
Blaming open-end funds for liquidity shocks is closed thinking
Controversial proposals to overhaul how funds manage liquidity risk are based on a fallacy, writes Eric Pan
Op risk data: Cigna catches a $172m cold over fake diagnoses
Also: Shinhan Bank America breaks AML rules; more greenwashing grime at DWS. Data by ORX news
JP Morgan, BofA say Basel III plan could wipe out capital cushion
Banks forecast $82 billion cumulative hike in capital requirements from Fed proposals
CME, DTCC lead CCPs on operational failures
Analysis of 15 clearing houses shows outages lasting 34 hours in the past year – highest figure since 2019
US banks ditch IR futures as appetite for swaps booms
Notional for futures craters 19% in Q2, hitting lowest in at least seven years
US banks’ RWA density dwarfs that of European peers
Truist, Capital One and PNC Bank lead with risk density above 65%
RBC’s credit derivatives book grows fourfold on market-making push
Notionals of credit protection sold and purchased have ballooned 236% and 382% respectively since October 2022
Cboe’s new options add diversity and liquidity to the credit market
Cboe has recently launched two options on futures products to help investors manage exposure and mitigate risk in corporate bond portfolios: options on iBoxx high-yield corporate bond index futures (IBYO), and options on iBoxx investment-grade corporate…
How to account for banks’ contribution to CO2 emissions
Price adjustments will depend on individual counterparties’ carbon footprints
Pricing the transition of Scope 3 emissions
A framework to measure banks’ costs associated with carbon emissions is proposed
Optimal allocation to cryptocurrencies in diversified portfolios
Asset allocation methods assign positive weights to cryptos in diversified portfolios
Firms seek optimisation gains as UMR and SA-CCR bite
A wider range of market participants is taking advantage of service providers such as OSTTRA’s optimisation cycles to drive margin and counterparty credit risk efficiencies across asset classes including FX, rates, equities, commodities and credit
