What’s a bank to do when it has to sit on exposures that it doesn’t like?
Sell them of course! Especially if those exposures are expensive to hedge and costly in terms of regulatory capital charges. Read more
Isn’t it annoying when particular clients insist on being treated differently to everyone else? Like, just because your client is well, England, or Italy, or some other sovereign nation, doesn’t make them ‘special’. It’s also kind of annoying when they make regulations that make business tougher for banks and then still expect to be treated differently.
Interestingly though, the Bank of England just stopped asking for one such special exception when it comes to certain derivatives that it enters into on behalf of the nation in order to best manage its balance sheet and the Treasury’s foreign exchange reserves. Read more
Just when someone’s gone and put a decent dataset together, someone has to go and mess it up. Thanks, Spain and Australia. Really, thank you. None of us really cared that much anyway about the data being comparable from one period to the next. Whatevs.
– FT Alphaville’s Internal Monologue Read more
Bank of England: Hey, FSA guys, don’t mean to tell how to do your job, but pssst! look at “collateral swaps” ok?
FSA: Collateral swaps? Do you mean “liquidity swaps”? We don’t think even Dodd-Frank looks at those..
Bank of England: Look at them anyway. We’ll be your overlords direct colleagues soon, so get on with it.
[several months pass]
FSA: We blocked some!! We blocked some!!
Alright, it probably didn’t go down like that, but FT Alphaville enjoys pretending it did. Read more
Use it as collateral of course.
We refer, of course, to the massive cash reserves built up by banks due to quantitative easing. Reserves which, as most deflationistas point out, have been stuck firmly on banks’ balance sheets rather than making their way through to the real economy — thus supposedly having little inflationary impact. Read more
That’s a sudden spike in trade volume right around Tuesday of this week. As a reminder, this index tracks CDS on 125 investment-grade names, including the monoline MBIA. Read more
Fresh from the Bank for International Settlements – lots and lots of derivatives statistics.
And according to the central bank’s bank, growth in the OTC derivatives market has rather slowed. Positions went up in the three years since their last Triennial survey (+15 per cent, or 5 per cent annualised) to $583,000bn, but that’s nothing compared to growth in the previous (2004-2007 period) or 131 per cent, or 32 per cent a year. Read more
Basel is busy bolting stable doors.
Indeed, one of the big drivers behind new Basel III counterparty risk capital requirements is the infamous negative basis trade. Read more
We’re just making our way through the new BIS quarterly review, but here’s a lovely piece of chart porn that caught our eye:
Confused about just how the Dodd-Frank Act would actually change derivatives markets? Happily, Barclays Capital’s Rajiv Setia and team have tried an answer.
Not so happily, the answer is a bit disconcerting. Read more
The Bank of England’s latest financial stability report has turned its attention to the increasingly cumbersome issue of Exchange-Traded Funds (ETFs), which have recently come in for some criticism over their growing complexity and lack of transparency.
As the Bank notes, the products do offer some great advantages to the market. Read more
Oil trading houses and large banks were watching their exposure to BP closely yesterday but said they continued trading as usual in spite of the company’s woes, the FT reports. “No change but watching carefully,” said an executive at one of the five largest oil trading companies. A senior trader at another big company added: “We are monitoring it closely, but trade remains as normal.” BP is central to commodities markets such as oil, gasoline and natural gas. It is the largest trader among the big oil companies, with far more complex activities on physical and derivatives markets than rivals such as ExxonMobil. Read more
Plans to force over-the-counter trading of derivatives on to exchanges to reduce counterparty risk need to be rethought by regulators, according to the Asia head of one of the world’s biggest brokers. Pierre Gay, Asia-Pacific chief executive of futures broker Newedge, said the creation of a central clearing house to act as counterparty to OTC transactions on exchanges could be dangerous because it would transfer risk from banks to the clearer. Read more
1Bird, plane, Abe
2The US collateral shortage lives on
3Alphachat: Lee Buchheit edition, featuring Lee Buchheit
4The (early) Lunch Wrap
5Re-setting ENRC (updated)
Show more6"This is Lake Wobegone upside-down"
Show fewer