|
Articles By
January 6: Operational Risk - Securities Class Action Filings Decline Sharply in 2009, With Steepest Drop in Claims Related to the Credit Crisis
Federal securities fraud class action activity in 2009 was down sharply compared to 2008 and historical averages. Perhaps most striking this past year was the rapid decline of credit crisis securities class action filings, which followed an equally quick ascent in 2007 and 2008.
January 6: Energy Risk - The Copenhagen Talks
The New Year is ringing in renewed hope. And so it is with the framers of the most recent global climate change accord. And while those advocates for change have fallen short of winning approval to make immediate and deep cuts in carbon emissions, they are vowing to continue their fight into 2010.
January 6: Country Risk - More Convincing Evidence That the Economic Recovery is Underway Sets the Stage for Higher Government Yields
The run of data over the past few weeks has largely produced upside surprises relative to market forecasts resulting in a sustained pickup in equity markets and a relatively sharp rise in government bond yields. In the US, the data continues to paint a picture of an economy in recovery mode, albeit still grappling with the effects of the credit market crisis.
January 6: Job at Risk - Energy CFOs Say Employment Levels Will Remain Steady in 2010
According to a new study, one of the nation’s leading accounting and consulting organizations, 65 percent of chief financial officers (CFOs) at oil and gas exploration and production companies say employment levels will remain stable at their company in 2010. Another 27 percent said they plan to hire more people. More CFOs in the industry are attuned to the requirements for the SEC’s modernization of oil and gas reserve disclosure rules, which went into effect on December 31, 2009.
January 5: Country Risk - US-China Relations Heads the Top Risks List for 2010
Top Risks identifies the upcoming year's key geopolitical areas to watch for global investors and market participants. According to a report, 2010 is likely to be much more turbulent geopolitically than 2009, when the world was preoccupied with coping with the global financial crisis, but saw no big geopolitical crisis.
January 5: Economic Risk - ISM Manufacturing Rises in December
The ISM Manufacturing Indexwas strong in December rising to 55.9 from the prior month’s 53.6 reading. Expectations within financial markets were for a more muted gain to 54.3. New Orders rose to 65.5 in December from 60.3 in November. On the inflationary front, prices paid rose to 61.5 against expectations of an increase to 57.2.
January 5: Weather Risk - January 2010 Strongest Cold Signal for East-Half
January 2010 had our strongest Cold signal for East-Half, and now it's manifesting.......
January 5: Energy Risk - When We’re 65
The utility industry is getting older. By some estimates, nearly half of today's workforce will be eligible for retirement in the next decade. Years of hard-won knowledge seem doomed to disappear just as utilities are implementing smart grid initiatives and benefiting from improved data collection and opportunities for advanced customer communications and energy efficiency. Is this a perfect storm?
January 5: Speech – Duke on the Economic Outlook
The following is a speech by Governor Elizabeth A. Duke at the Economic Forecast Forum in Raleigh, North Carolina.
January 5: Speech – Bernanke on Monetary Policy and the Housing Bubble
The following is a speech by Chairman Ben S. Bernanke at the Annual Meeting of the American Economic Association in Atlanta, Georgia.
January 4: DvD Insights - Basic Building Blocks of Yield Curve Smoothing (Part 9), Cubic Forward Rate Splines and Related Yields versus Nelson-Siegel
In Part 8 of this series, we observed that it has been proven that a cubic spline, in general, produces the smoothest set of curves that one can draw between data points. This is certainly true in the case of smoothing the yield curve. As we show in part 10 of this blog series, this is NOT TRUE in the case of a cubic spline of forward rate curves if we apply the normal constraints one needs to fit observable financial data. In this post, we ignore that insight and flail ahead, erroneously assuming that if splines work reasonably well when applied to yields, they will work even better when applied to forward rates.
January 4: Credit Risk - Kamakura Reports 8th Improvement in Corporate Credit Quality in Last 9 Months
Kamakura Corporation reported Monday that the Kamakura index of troubled public companies improved in December for the eighth time in the last nine months. The index declined from 11.45% in November to 11.07% in December, a total decline of 12.93 percentage points for 2009.
January 4: Market Risk - 2009 Ends With US Mortgage Rates Just Over 5 Percent
Freddie Mac last week released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 5.14 percent with an average 0.7 point for the week ending December 31, 2009, up from last week when it averaged 5.05 percent.
January 4: Market Risk - DJIA Year-End Factoid
Up 1651.66 points, or 18.82% in 2009.
January 4: Credit Risk - ISDA Determinations Committee Votes AIFUL a Restructuring
ISDA last week announced that its Japan Credit Derivatives Determinations Committee resolved that a Restructuring Credit Event occurred in respect of AIFUL Corporation, a Japan-based financial service provider.
December 30: Wishing you a very happy, prosperous New Year and every success in 2010
We will open the book. Its pages are blank. We are going to put words on them ourselves. The book is called "Opportunity" and its first chapter is New Year's Day. Cheers to a New Year and another chance for us to get it right.
December 29: DvD Insights - June Jones versus Lloyd Blankfein: An Update on Why Football Coaches are Paid for Skill and CEOs are Not
In our post on December 4, we argued that it’s obvious that the basis for compensation varies by the job: football coaches are paid for their skill, but large company CEOs are not. Large company CEOs, we argued, are winners of a lottery that entitles them to huge payouts during their brief tenure. In that piece, we compared the high correlation between skill and compensation among American collegiate football coaches and financial services CEOs, focusing on Coach June Jones of the Southern Methodist University Mustangs and Lloyd Blankfein, CEO of Goldman Sachs. Santa Claus came earlier this year, delivering updates on both men on December 23 and 24.
December 29: Commentary - Goodbye Copenhagen, Hello Mexico City
COP15 (the United Nations climate talks) in Copenhagen came to a close on December 18 after a tumultuous two weeks in which emotions and expectations rose and fell on a daily basis. In the end, COP15 produced a relatively weak political agreement that committed to keep global warming at 2°C or less and promised $30 billion in funding to battle climate change by 2012.
December 29: Energy Risk - New Innovation
Jim Avery, senior vice president of power supply for San Diego Gas & Electric (SDG&E), has a story to tell about smart grid technology and workforce education. This pairing has really taken off at his utility and throughout the area.
December 28: Industry Risk - Global Reinsurers Remain Strong Despite Challenges
The global reinsurance market has demonstrated robustness and resilience despite the combined challenges of sustained catastrophic losses and the historically low investment environment that manifested in 2008.
December 28: Energy Risk - Emissions Software, Are We Ready?
Greenhouse gas emissions have been receiving a lot of attention recently. Last week, President Barack Obama traveled to the Climate Change Conference in Copenhagen and pledged a 17 percent reduction in U.S. greenhouse gas emissions by 2020. Meanwhile, other initiatives have taken place both within the US and in other regions of the world. At this time, despite continued uncertainties, we may well stand on the precipice of an era in which carbon becomes a globally traded commodity and in which companies, particularly energy companies, are forced to monitor, track, report and reduce their GHG and other emissions.
December 28: Energy Risk - Natural Gas’ Fortunes
Energy's future may have come to light with Exxon Mobil Corp.'s proposed purchase of XTO Energy. If ExxonMobil's predictions are right, unconventional formations such as shale would provide significantly more of this country's generation and transportation fuels.
December 28: Market Risk - SIFMA’s Statement on Repo Infrastructure Reform Task Force Progress Report
The Securities Industry and Financial Markets Association (SIFMA) last week released the following statement from SIFMA Managing Director, Rates Division, Robert Toomey in response to the Payments Risk Committee’s (PRC) progress report on the work of the Tri-party repurchase Agreement (Repo) Infrastructure Reform Task Force.
December 28: Market Risk - US Long-Term Mortgage Rates Inch Up To Just Over 5 Percent
Freddie Mac last week released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 5.05 percent with an average 0.7 point for the week ending December 24, 2009, up from last week when it averaged 4.94 percent. Last year at this time, the 30-year FRM averaged 5.14 percent.
December 23: ‘Twas the Night before Earnings…
‘Twas the night before earnings, when all through accounting, Not a number was crunching; the pressure was mounting; The toy company’s financials were all prepped with care, In the hopes that the SEC would not soon be there;
December 23: Regulatory Risk - US Agencies Issue Final Rules on Risk-Based Pricing Notices
The Federal Reserve Board and the Federal Trade Commission yesterday announced final rules that generally require a creditor to provide a consumer with a notice when, based on the consumer's credit report, the creditor provides credit to the consumer on less favorable terms than it provides to other consumers. Consumers who receive this "risk-based pricing" notice will be able to obtain a free credit report to check the accuracy of the report.
December 23: Market Risk - Tri‐party Repurchase Agreement (Repo) Infrastructure Reform Task Force Releases Progress Report
The Payments Risk Committee (PRC) yesterday announced the publication of a progress report on the work of the Tri‐party Repurchase Agreement (Repo) Infrastructure Reform Task Force.
December 23: Energy Risk - Opec Rolls Over, Again!
OPEC is actually scheduled to meet just twice each year but in view of the volatility in recent years has met as much as six times in the year. Furthermore, each member state holding the presidency naturally wants to host a meeting and this usually takes place in December.
December 23: Operational Risk - Companies with Mature Talent Management Capabilities See 18 Percent Higher Earnings, Other Benefits
Companies with more mature Talent Management capabilities reap strong bottom-line benefits, including earnings that are 18 percent higher than typical Global 1000 companies.
December 23: Economic Risk - Managers Hopeful for 2010
Even though U.S. equity markets have made remarkable gains since their March lows, professional money managers still see room for growth in the year ahead. Nearly 80 percent of the managers responding to the latest Investment Manager Outlook, a quarterly survey of U.S. investment managers conducted by Russell Investments, expect U.S. equity markets to rise over the 12 months ending December 2010.
December 23: Energy Risk - Demonstrating Storage Devices
Balancing the electricity load is a difficult job. The hard part is maintaining that portion of the system that often sits idle but which is necessary to meet high energy times.
December 22: Operational Risk - CEBS Publishes Draft Guidelines on the Management of Operational Risk in Market-Related Activities
The Committee of European Banking Supervisors (CEBS) published its consultation paper (CP35) on its draft guidelines on the management of operational risk in market-related activities. The consultation is open to all interested parties, including supervised institutions and other market participants.
December 22: Commentary - Predictions for 2010, the Best is Yet to Come
The first issue we see in 2010 is "completing the transition into a new reality that the country has moved into a post real estate boom phase. The second issue related to the first point will be the peak of loss experience for some US banks as the credit cycle plays out during 2010.
December 22: Operational Risk - ISDA Portfolio Reconciliation Feasibility Study Advances Understanding and Promotes Better Collateral Management Practices
ISDA yesterday announced the publication of its “Feasibility Study: Extending Collateralized Portfolio Reconciliations”. This publication is intended to enhance understanding of the achievability for wider adoption of portfolio reconciliation discipline across the industry.
December 22: Market Risk - European Fixed Income, to The Victors, the Spoils
Across Europe, institutions in 2009 shifted fixed-income trading flows away from financial service firms whose balance sheets took significant hits during the global financial crisis. This trading business was redirected to a relative handful of dealers viewed as the most financially secure and best positioned to be reliable fixed-income liquidity providers and sound derivatives counterparties.
December 22: Industry Risk - Gradual Recovery Will Continue for Global Chemicals Industry in 2010
Fitch Ratings expects a gradual recovery to continue for the global chemicals industry as global chemicals markets stabilized in the first half of 2009 and continue to rebound from record lows.
December 22: SIFMA Introduces New Professional Societies
With the introduction of these professional societies, we’ll be able to serve individuals working in the financial services industry with many of the same opportunities as SIFMA provides to its member firms.
December 22: Energy Risk - Wind’s Blues
Green energy is causing a blue mood in West Virginia. Opponents of a wind farm there near the Greenbrier resort have long said that a project now underway is killing bats and that it must comply with federal laws. A federal judge now agrees with them.
December 21: BIS - Basel Committee Announces Consultative Proposals to Strengthen the Resilience of the Banking Sector
At its 8–9 December meeting, the Basel Committee on Banking Supervision approved for consultation a package of proposals to strengthen global capital and liquidity regulations with the goal of promoting a more resilient banking sector. Along with the measures taken by the Committee in July 2009 to strengthen the Basel II Framework, the proposals announced today are part of the Committee’s comprehensive response to address the lessons of the crisis related to the regulation, supervision and risk management of global banks.
December 21: Commentary - A Year in Review, 2009
2009 will go down in economic history as probably one of the easiest years to predict. Given that the global financial crisis had already engulfed most economies by the last quarter of 2008, even those that refused to believe their own eyes and ears, it was clear that we were heading for a bumpy ride. And a bumpy ride we did have. However, what is still not clear is whether we are completely out of the woods yet.
December 21: Market Risk - SIFMA’s Economic Advisory Roundtable Unveils Predictions for Q4 2009, 2010
SIFMA Economic Advisory Roundtable unveiled its outlook for Q4 2009 and 2010, forecasting the Federal Open Market Committee will not change its current 0.0 to 0.25 percent target federal funds rate at its December 15-16 meeting.
December 21: Credit Risk - InteDelta Credit Climate Index, More Pain for the UK and Consumers Globally, Positive Sentiment Towards Asia
The newly launched InteDelta Credit Climate Index is based on a survey of risk managers and senior management in financial institutions. Expectations for the coming months show deterioration in creditworthiness in Europe across all sectors, with non-Eurozone countries particularly in the UK, expected to be hardest hit.
December 21: Operational Risk - ISDA Announces Market Practice Changes for Asia CDS Markets
ISDA announces market practice changes to the trading convention for credit default swaps (CDS) in Japan and Asia ex-Japan that take effect today. These changes include the adoption of standard coupons and full first coupons in CDS transactions.
December 21: Operational Risk - ISDA Research Notes Analyzes "Empty Creditor" Hypothesis
ISDA last week published a detailed analysis of the issues and implications raised by the “empty creditor” hypothesis. The analysis is contained in the quarterly ISDA Research Notes, authored by David Mengle, PhD, ISDA Head of Research.
December 21: Regulatory Risk - US Regulators Encourage Comments to Basel Committee
The Basel Committee on Banking Supervision (the Committee) last week released for comment new proposals that aim to strengthen the resiliency of the banking sector through new capital and liquidity standards. Following the Basel II enhancements released in July 2009, these proposals represent part of the Committee's ongoing effort to apply lessons learned from recent market events to enhance regulation, supervision, and risk management of global banks.
December 21: Energy Risk - ExxonMobil Makes an Unconventional Move
In an effort to increase its U.S. natural gas reserves, ExxonMobil announced that it was buying XTO Energy. The price tag is $41 billion—$31 billion of stock and ExxonMobil is assuming $10 billion in XTO debt. In addition to increasing the company's reserves by 45 trillion cubic feet (Tcf), this acquisition also provides ExxonMobil additional leasehold in many of the most promising “unconventional” natural gas deposits in the United States, including coal seam gas, shale gas, and tight sands.
December 18: COP15 - To Be or Not to Be? That is the Question
As many of the world's leaders arrive in Copenhagen to try to seal a climate deal, the signals emerging regarding progress from COP15 are mixed. Yesterday, the negotiating process was subject to an "unexpected stop," according to Yvo de Boer, the United Nation's top climate official and it has indeed been a week of stops and starts as even on Monday, informal talks between the COP15 presidency and developing countries ended a daylong boycott of negotiations, which was apparently caused by controversy over the Kyoto Protocol.
December 18: Industry Risk - New Report Highlights How Pioneering Community Leaders Are Responding to Foreclosure Crisis
A story that has not been fully told is the deep impacts foreclosures are having on America's cities, triggering a spiral of abandonment, decay and municipal budget shortfalls.
December 18: Energy Risk - Improving Days Sales Outstanding with Benchmarking
When asked to conduct benchmarking UtiliPoint, has found that utilities want to be compared, or benchmarked, with companies that are as much alike as possible. Electric utilities want to be compared with other electric utilities, and gas utilities with gas utilities. Those with more than one million end users want comparisons of utilities with the same or similar number of customers. When attempting to improve Days Sales Outstanding (DSO), this methodology is not always preferred.
December 18: Industry Risk - Light at the End of the Tunnel in Sight for US Homebuilders
With various macroeconomic housing and related statistics bottoming about mid-year 2009 and subsequently moving forward in fits and starts, a four-year downturn has evidently come to an end for U.S. homebuilders, according to Fitch Ratings in its outlook report for the sector.
December 18: Market Risk - SIFMA Issues Report on Findings from Municipal Securities Issuance Survey
The Securities Industry and Financial Markets Association (SIFMA) yesterday released its 2010 Municipal Issuance Survey. Compiled from responses provided by large and regional municipal bond underwriters and dealers, the report forecasts what type of activity is expected in the taxable and tax-exempt municipal securities market in 2010.
December 18: Market Risk - US Mortgage Rates up But Still Below 5 Percent
Freddie Mac yesterday released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 4.94 percent with an average 0.7 point for the week ending December 17, 2009, up from last week when it averaged 4.81 percent. Last year at this time, the 30-year FRM averaged 5.19 percent.
December 18: Testimony - Allison on the Treasury as a Shareholder
The following is written Testimony of Herbert M. Allison, Jr., Assistant Secretary for Financial Stability Domestic Policy Subcommittee of the Oversight and Government Reform Committee.
December 17: Operational Risk - SEC Approves Enhanced Disclosure about Risk, Compensation and Corporate Governance
The Securities and Exchange Commission today approved rules to enhance the information provided to shareholders so they are better able to evaluate the leadership of public companies. Beginning in the upcoming annual reporting and proxy season, the new rules will improve corporate disclosure regarding risk, compensation and corporate governance matters when voting decisions are made.
December 17: DvD Insights - Liquidity Risk Lessons from the Credit Crisis: “Core” Deposits Aren’t “Core”
One of the most important lessons from the credit crisis is that so called “core deposits,” consumer savings and demand deposits, aren’t really “core” when you most need them, when the bank is in trouble. This post gives some examples from the credit crisis and discusses implications for best practice liquidity risk and interest rate risk management.
December 17: Economic Risk - US Fed Sees Improving Financial Market Conditions and Labor Markets
As expected, the FOMC kept the target for the Fed funds rate in the 0 to 0.25% range and reiterated that the low level of the policy rate would likely be warranted "for an extended period." The Fed reiterated the view that U.S. economic activity "continued to pick-up" and added that "the deterioration in the labour market is abating". The statement still maintains that the economy's performance will remain "weak for a time," although financial markets conditions are now considered to be "supportive" to the economy.
December 17: Market Risk – David Miles Speaks on the Future Financial Landscape
In a speech yesterday in London, Professor David Miles – an external member of the Monetary Policy Committee – discusses the current problems in the banking sector, how it might operate differently in the future, and the near-term and long-term monetary policy implications.
December 17: Job at Risk - Energy Companies Struggle with Compensation Goals, Dole out Smaller Bonuses
According to a new study by BDO Seidman, LLP 65 percent of chief financial officers (CFOs) at oil and gas exploration and production companies say bonuses this year are lower than in 2008. Only five percent report a bump in bonuses, and 30 percent say they are level with last year.
December 17: Energy Risk - Blue Skies for Green Investment
International discussions to achieve firm carbon constraints may come up short. But that won't inhibit national governments and their legacy enterprises from investing in green technologies.
December 17: Operational Risk - FSA Consults on Raising Professional Standards for All Investment Advisers
The Financial Services Authority (FSA) has published proposals for enhancing the professionalism of investment advisers under the Retail Distribution Review (RDR). The RDR is seeking to rebuild people’s trust and confidence in the retail investment market by raising standards of professionalism.
December 16: Operational Risk - CEBS Publishes Revised Guidelines on Financial Reporting
CEBS published its revised guidelines on financial reporting (FINREPrev2). The revision of the guidelines is part of CEBS’s effort to streamline reporting requirements for supervised institutions, consistent with the recommendations of the Financial Services Committee Report on Financial Supervision (the Franck Report) and the White Paper of the Commission on Financial Services Policy -2005-2010.
December 16: DvD Insights - Basic Building Blocks of Yield Curve Smoothing (Part 8), Cubic Yield Splines and Related Forwards versus Nelson-Siegel
In this post we make an important change in our definition of the “best yield curve.” In this post we change the definition of “best” to be the yield curve with “maximum smoothness,” which we define mathematically. Given the other constraints we impose for realism, we find that this definition of “best” implies that yield curve should be formed from a series of cubic polynomials. We then turn to Example F, in which we apply cubic splines to yields and derive the related forward rates. We compare the result to Example E, the quadratic spline of forward rates, and we draw some interesting conclusions. We then lay out our plans for Part 9 in the series, a cubic spline of forward curves.
December 16: Interview - Michael Krimminger on Fixing Bank Securitization
This week in The IRA we feature a conversation with Mike Krimminger of the FDIC regarding the new draft rule on bank securitizations that will be made public by that agency later this month. But before we go to the main event, we need to tie up a few loose ends from last week's comment regarding the re-nomination of Ben Bernanke as Fed Chairman.
December 16: COP15 - Is it Based on Science or Politics?
One thing that the recent "Climategate" episode may have done is to rightly focus more attention on the science that is really the driving force behind the COP15 meeting currently taking place in Copenhagen. Reading through the hacked e-mails published on various blog sites, it becomes obvious very quickly that the rigor and pure approach of science has been totally overwhelmed and compromised by politics and money.
December 16: Operational Risk - Institutional Investors Identify Stress Testing as a Key Risk Tool
In a survey of some of the largest and most influential institutional investors globally, MSCI Barra found that respondents identified stress testing as a critical risk tool in the future. Both pension plans and asset managers emphasized that in the aftermath of the 2008 crisis, stress testing at the enterprise level is needed to manage potential large market disruptions.
December 16: Market Risk - FSA Mortgage Lending Data Published
The Financial Services Authority (FSA) has yesterday published its Mortgage Lending Data for the United Kingdom coveringQ2 2008 to Q3 2009.
December 16: Operational Risk - ISDA Announces Decision on Cemex Restructuring
ISDA announced that an External Review Panel of the Americas Determinations Committee resolved that a Restructuring Credit Event occurred in respect of Cemex S.A.B. de C.V., a Mexico-based holding company of entities whose main activities are in the construction industry.
December 15: Speech – Chan on the Risk of Asset-Price Bubbles
The following is a speech by Mr Norman T.L. Chan, Chief Executive of the Hong Kong Monetary Authority,on the risk of asset-price bubbles at the Hong Kong Economic Summit.
December 15: Operational Risk - ISDA Commends Industry in Achieving Buy-side Access to CDS Clearing
ISDA yesterday commended the privately negotiated derivatives industry's success in achieving buy-side access to central clearing of credit default swaps (CDS) by December 15, as stipulated by industry commitments made to regulators.
December 15: Energy Risk - Smart Meter Skeptics
In some circles, pushing smart meters may end up being dumb policy. A wave of public relations is now drowning out the skeptical voices necessary to assure that the public does not get bamboozled, some consumer advocacy groups say.
December 15: Commodity Risk - Silver Outperforms Gold by +30% In 2009
Despite the gains in 2009, we continue to believe both gold and silver serve as safe haven investments, particularly as a hedge against the longer-term risk of hyper-inflation. And while the gold to silver ratio has normalized in recent months, we still expect silver to outperform gold going forward, especially if we see further advances in industrial demand from the emerging markets and continued fear of rising inflation.
December 15: Operational Risk - Over 50% of Buy-Side Firms Cite Data Aggregation as the Major Challenge in Managing Enterprise Risk
In a new risk management research report, “The Buy-Side Perspective on Risk: Frequency, Aggregation and Process,” TABB Group says 51% of the buy-side firms they interviewed cite data aggregation as their most significant challenge in managing enterprise risk. This is leading buy-side traders, closer to the profit and losses of the portfolio itself, to play an increasing role in risk management, identifying information that has not been readily available in risk models or counterparty data.
December 15: Commentary - Airplane Thoughts
As I have written previously, Bernanke’s hands are not clean with respect to the primary cause of the recent financial and economic crisis. As a Fed governor, he never formally dissented from a Greenspan-led majority FOMC decision. In fact, then Governor Bernanke was a public cheerleader for Greenspan’s easy credit policies of the early 2000s. But presumably, the recent Senate confirmation pertained to Bernanke’s performance as chairman of the Fed, not his prior service as one of Greenspan’s lieutenants.
December 15: Commentary - It’s Not Too Late for Congress to Fix the Derivatives Market
The financial reform legislation that passed the House last week doesn’t fix the derivatives market but there is still time to make it right. The Senate hasn’t passed its version of the bill and all Senators need to do is include a provision stopping the Federal government from preventing enforcement of state and local criminal gaming and bucket shop laws.
December 15: Operational Risk - CEBS Draft Revised Guidelines on Stress Testing
The Committee of European Banking Supervisors (CEBS) published the draft of its revised Guidelines on stress testing for consultation. The consultation is open to all interested parties, including supervised institutions and other market participants.
December 14: Energy Risk - Obama’s Pledge
In an effort to give the Copenhagen conference momentum, the Obama administration has introduced its long-awaited policy declaring greenhouse gases dangerous to the environment and public health.
December 14: Market Risk - Most US Mortgage Rates Follow Bond Yields Higher This Week
Freddie Mac last week released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 4.81 percent with an average 0.7 point for the week ending December 10, 2009, up from last week when it averaged 4.71 percent. Last year at this time, the 30-year FRM averaged 5.47 percent.
December 14: Operational Risk - Demand for High-quality Reference Data Continues to Grow
From April to November 2009, AIM Software carried out its Global Reference Data Survey in 51 countries. The global findings 2009 show that high-quality reference data is more than ever being considered a key issue for financial institutions in order to reduce errors (73% of all responses), cut costs (58%) and to help understand a firm’s exposure to risk (58%).
December 14: Operational Risk - CEBS Draft Guidelines on Concentration Risk
The Committee of European Banking Supervisors (CEBS) published its draft revised guidelines on aspects of the management of concentration risk under the supervisory review process. The consultation is open to all interested parties, including supervised institutions and other market participants.
December 14: Commentary - Don't Think "Climate Change," Just Think Change!
People often naturally resist change. It's both threatening and unsettling. The atmosphere in Copenhagen currently, however, is one of tremendous optimism and excitement at the prospect of exactly that—fundamental change. Confidence is growing that COP15 will be, if not the definitive agreement then certainly the moment at which historians can say with confidence—that's when the changes started. It's quite infectious, actually.
December 14: Operational Risk - CEBS Publishes Its Guidelines on Hybrid Capital Instruments
The Committee of European Banking Supervisors (CEBS) last week published its implementation guidelines on hybrid capital instruments.
December 14: DvD Insights - Basic Building Blocks of Yield Curve Smoothing (Part 7), Quadratic Forward Rate Splines and Related Yields versus Nelson-Siegel
In this post we take a logical step forward from Example D in part 6 of this series, where we used quadratic splines to fit yields. The result of that exercise was two insights. First we saw much more variation in forward rates than yields, and we found that the “right hand” side constraint on the “best yield curve” can have a big impact on the nature of both yields and forwards. In this post, we turn to Example E, in which we apply quadratic splines to forward rates. The result is a big improvement in realism, which is the ultimate criterion for “best yield curve.” We close by making our normal comparison to the misused Nelson-Siegel technique and lay out our plans for Part 8 in the series, “maximum smoothness yield curves.”
December 14: Regulatory Risk - FSA Strengthens Stress Testing Regime
The Financial Services Authority (FSA) has strengthened its stress testing regime by requiring firms to improve their stress testing capability, enhance their capital planning stress testing and by introducing a reverse stress testing requirement for firms.
December 11: Energy Risk - Report Finds New US Gas Supplies a Bridge to Low-Carbon Future, but Only When Combined with Climate Policies
Abundant new natural gas supplies can help the United States achieve low-carbon goals, but only if coupled with effective climate policies, according to a new study from Resources for the Future.
December 11: Operational Risk - Financial Institutions Say IT Will Impact Productivity, Compliance in 2010
Of the lending executives who attended the conference, 48 percent expect technology’s primary role will be to increase productivity and efficiency, followed by compliance assistance (26 percent), enhanced risk management (21 percent) and improved quality control (five percent).
December 11: Regulatory Risk - 2009 SEC Settlements Decline for Second Consecutive Year
The number of Securities and Exchange Commission settlements declined for the second consecutive fiscal year in 2009, with 626 defendants, compared to 673 in FY 2008, according to NERA Economic Consulting's fiscal year-end SEC Settlements Trends report.
December 11: Industry Risk - Business Travel Demand Rebound will be Key for US Airline Credit Stabilization in 2010
Fitch Ratings says after weathering two years of extreme operating pressure driven by both unprecedented demand weakness and volatile energy prices, the largest U.S. airlines approach 2010 with guarded hopes that a slow but sustained recovery in margins and cash flow generation can lay the groundwork for modest balance sheet repair and a stabilization of stressed credit profiles and ratings.
December 11: Operational Risk - FSA Consults on Strengthening Firms’ Capital Standards
The Financial Services Authority (FSA) has yesterday issued proposals aimed at ensuring the financial soundness of firms by strengthening the prudential regime. The consultation paper sets out the FSA’s proposals for implementing changes that are required following amendments to the EU Capital Requirements Directive.
December 11: Country Risk - TARP Helped Stop Economic Panic, Underlying Weaknesses in US Financial System Remain
The Congressional Oversight Panel this week released its December oversight report, "Taking Stock: What Has the Troubled Asset Relief Program Achieved?" The Panel concluded that TARP was an important part of a broader government strategy that stabilized the U.S. financial system. It is apparent after 14 months, however, that significant underlying weaknesses in the financial system remain.
December 11: Job at Risk - US Base Salary Increases at Lowest Levels in the Past Decade
U.S. employees can expect median pay increases of 2.5% in 2010, according to a new Hay Group study. The 2.5% planned amount is the lowest planned increase in the last decade and it is also one half of a percent lower than when Hay Group conducted a similar study in July 2009, which forecasted a 2010 median pay budget increase of 3.0%.
December 10: Commentary - TARP’s Possible Role in Jobs Growth
To get jobs growth going, maybe what is required is a business solution and not an economic solution. The exceptions are people like Ben Bernake who did a marvelous job of reducing the severity of this recession. Even then Bloomberg reports (05/29/09) that Bernanke’s efforts to bring down borrowing costs to revive the housing market and help the economy are stalling.
December 10: Regulatory Risk - CEBS Guidelines on Liquidity Buffers
The Committee of European Banking Supervisors (CEBS) yesterday published its guidelines on liquidity buffers following a four-month public consultation period and a public hearing. These guidelines, which build on CEBS’s Recommendations on Liquidity Risk Management, elaborate upon the appropriate size and composition of liquidity buffers to enable banks to withstand a liquidity stress for a period of at least one month without changing their business models.
December 10: Interview - SkyBridge Capital’s Anthony Scaramucci Discusses Seed Capital for Hedge Funds
When launching a hedge fund, managers face an implicit conundrum – how do you raise money without a track record and how do you develop a track record without the money? The increasingly acceptable approach is to accept seed capital – the venture capital component of the hedge fund universe. But that wasn’t always the case. Strong arguments were made for a selection bias in managers that opt for a seed investment, the argument ran something like, “if you’re that good, you won’t give away equity” approach. However the environment has changed. Recent research from Acceleration Capital Group offers some metrics around the trends. To provide an informed view from the seeding perspective, we direct our 7 questions this month to Anthony Scaramucci, Managing Partner of SkyBridge Capital, to help us understand the current dynamics.
December 10: Market Risk - US High Yield Default Outlook Much Improved Though Risks Linger
Fitch Ratings projects that the U.S. high yield default rate will continue to decline in 2010 to a range of 6%-7% by year-end, a marked improvement from 2009's results but still above the long-term average annual rate of 4.7%.
December 10: Operational Risk - CEBS Compendium of Supplementary Guidelines on Implementation Issues of Operational Risk
The Committee of European Banking Supervisors (CEBS) this week published its “Compendium of supplementary guidelines on implementation issues of operational risk” (the Compendium) and a feedback document following a three-month consultation period on CP21 and a related public hearing.
December 10: Energy Risk - Investment in All Energy Sources is Required, ExxonMobil Says in New “Outlook for Energy, A View to 2030”
Growing world economies will increase energy demand by about 35 percent in 2030 compared to 2005, requiring trillions of dollars in investment and a commitment to innovation and technology, Exxon Mobil Corporation said as it released its new edition of Outlook for Energy: A View to 2030.
December 10: Country Risk - US Treasury to Expand TARP to October 2010
The U.S. Department of the Treasury released the text of identical letters sent today from Secretary Tim Geithner to Speaker Nancy Pelosi and Senator Harry Reid outlining the Administration's exit strategy for the Troubled Asset Relief Program (TARP) established by the Emergency Economic Stabilization Act of 2008 (EESA).
December 10: Energy Risk - Sifting Through the Fog
Despite the cries of foul play, the global community is working right now to reduce greenhouse gas emissions. But the massive uproar from skeptics over global warming has diverted attention and dampened some of the enthusiasm in Copenhagen where those climate talks are occurring.
December 9: Energy Risk - Exactly What is COP15?
For the next two weeks, the global media will undoubtedly spotlight the United Nations Climate Change Conference being held here in Copenhagen, Denmark. Without a doubt, the eventual outcome of COP15 is likely to have a significant impact on both you as an individual and your company. Indeed, if the kind of agreement envisaged by, for example, the European Union (EU) is reached, it is likely to have huge global economic, political and social ramifications and it will dramatically change our world and the way we live. However, while some form of agreement is virtually certain to emerge from Copenhagen, the actual shape and nature of the agreement has yet to be determined. So what exactly is at stake this next two weeks in Copenhagen and how did we arrive at this point?
December 9: Testimony – Allison on the Private Sector and Government Response to the Mortgage Foreclosure Crisis
The following is written testimony by Treasury Assistant Secretary for Financial Stability Herbert Allison before the House Financial Services Committee on “The Private Sector and Government Response to the Mortgage Foreclosure Crisis.”
December 9: Job at Risk - Tech Industry Board Director Compensation More Than Triple That of Financial Services Boards
BDO Seidman, LLP released the findings of its annual board compensation study which tracks board compensation by industry, including energy, financial services, manufacturing, real estate, retail and technology. The study found that technology remains the most lucrative industry for board members, with compensation averaging $142,370.
December 9: Energy Risk - Europe’s Leadership
Global climate change talks will produce changes. But that progress will fall short of what many environmentalists are hoping for and namely firm and binding commitments in reductions in heat-trapping emissions.
December 9: Job at Risk - FSA Publishes Feedback Statement on Remuneration
The Financial Services Authority (FSA) has yesterday published the summarised feedback it received on whether to extend its code on remuneration policies to other FSA-authorised firms.
December 9: SoberLook - Barney Frank's House Bill H.R. 3996 - Impact on Secured Lending
Bair, in a letter to lawmakers released today, endorsed a proposal that was added last week to the regulatory overhaul legislation making its way through the House Financial Services Committee. It would require secured creditors, like repurchase agreement lenders and the Federal Home Loan Bank system, to bear losses of as much as 20 percent to cover the costs of a systemically significant bank failure.
December 9: Economic Risk - Economic Recovery Continues in 2010
Economic growth in the United States will resume in 2010, say the nation’s purchasing and supply management executives in their December 2009 Semiannual Economic Forecast. Expectations for 2010 are for the positive conditions experienced in the second half of 2009 to continue in manufacturing, while the non-manufacturing sector foresees marginal growth,say the nation’s purchasing and supply management executives in their December 2009 Semiannual Economic Forecast.
December 8: Energy Risk - Reinventing Carbon Dioxide
Recession may stymie the rate of economic commerce. But it does nothing to inhibit the human mind. At issue now are rising pollution rates in combination with a declining fossil fuel base, both of which are causes that scientists and engineers are dedicating time and resources.
December 8: Industry Risk - Sovereign CDS Liquidity Now Greater for Developed than Emerging Economies
Fitch Solutions says the global CDS market has now become more uncertain about the outlook for developed economies than for emerging economies, with average liquidity on developed economies' sovereign CDS exceeding that for emerging economies since 23rd November.
December 8: Operational Risk - Securities Litigation Fears Escalate as Compliance, Internal Audit Professionals Ranks Decrease
In a recent Deloitte online poll of business professionals across various industries, 37.5 percent say they are at least as concerned and 18.2 percent say they are more concerned about their company becoming a target of securities litigation as they were two years ago. Fueling this fear may be the fact that 27.4 percent of respondents report losing headcount in the compliance and internal audit function over the past 18 months.
December 8: Market Risk - Hedge Funds Advance +1.70% in November
Hennessee Group announced yesterday that the Hennessee Hedge Fund Index advanced +1.70% in November (+22.40% YTD), whilethe S&P 500 rose +5.34% (+20.84% YTD), the Dow Jones Industrial Average increased +6.51% (+17.87% YTD), and the NASDAQ Composite Index advanced +4.86% (+35.99% YTD).
December 8: Market Risk - Credit Derivatives Monthly Report, November 2009
CDS market activity remained characterised by further widening throughout the course of last month, extending the gradual decline in creditworthiness that began in late summer 2009. Risk aversion trades appear to be gaining increasing traction among credit derivatives markets, with the predominant bias of the corporate market remaining to the upside. Sovereign contracts sparked by a host of weaker-than-anticipated macro data in the US, are also beginning to flag increasing concern, with the US Sovereign 5-yr contract moving above 30bps towards the end of last month (from the low-20bps region at the start of November).
December 8: Commentary - June Jones versus Lloyd Blankfein, Why Football Coaches are Paid for Skill and CEOs are Not
President Obama’s pay czar Kenneth Feinberg has a daunting task. He has to intervene and override “market forces” to establish “fair pay” for the CEOs of major institutions that are reliant on government support for their survival. The difficulty in this process is a simple fact: football coaches are paid for their skill, but large company CEOs are not. Large company CEOs, with a few exceptions, are winners of a lottery that entitles them to huge payouts during their brief tenure. On behalf of the shareholders, the Boards of Directors of these firms have to do a better job of separating luck from skill.
December 7: Energy Risk - Rail System Rallies
Warren Buffett is banking on the rail system to move America into the next era of prosperity. By extension, he might also be helping to boost the coal industry, which is dependent on rail transportation.
December 7: Industry Risk - Majority of Retailers Say Holiday Advertising and Marketing Budgets Flat
More than half (55%) of retailers say that their 2009 advertising budget is flat this holiday season, up from 43 percent in 2008. Only 19 percent of retailers have increased their advertising budgets this year, while one-quarter (26%) of retailers cite budget reductions.
December 7: Country Risk – US and Canadian Labor Markets
The November labour market report showed amuch smaller-than-expectedjob loss with only 11,000 positions cut compared to marketforecastsof a 125,000 decline.The report also showed solid revisions to the declines in previous months, with October's loss at 111,000 (revised from -190,000)and September's number revised to -139,000 from -219,000.
December 7: Energy Risk - LNG and the US Energy Markets
Italy's Statoil and Russia's Gazprom announced this week that they have entered into a preliminary agreement that will see additional volumes of LNG (liquefied natural gas) hitting the U.S. markets in the coming years. Under the agreement, Gazprom will receive up to 200MMBtu/day of LNG regasification capacity from Statoil at the Cove Point terminal on the shores of Chesapeake Bay for up to 20 years; Statoil will buy an additional 200MMBtu/day of LNG from Gazprom which will also go to Cove Point; and Statoil will sell non-LNG supplies of natural gas to Gazprom at various trading points around the United States for five years.
December 7: Commentary - Is the Fed Engaged in Quantitative or Qualitative Easing?
As I define it, qualitative easing. If the Fed were pursuing a quantitative easing policy, its balance sheet would be growing at an unusually high rate. The Fed allegedly began to engage in quantitative easing at its mid-March FOMC meeting this year. So, let’s look at the rate of growth in the Fed’s balance sheet from the last Wednesday in April through the last Wednesday in November and compare this current rate of growth with rates of growth in the Fed’s balance sheet for comparable periods in previous years.
December 7: DvD Insights - Basic Building Blocks of Yield Curve Smoothing (Part 6), Quadratic Yield Splines and Related Forwards versus Nelson-Siegel
In Part 6 of our series on the basic building blocks of yield curve smoothing, we learn from our results in Part 5 (linear forward rates). We found in Part 5 that, for forward rates to be continuous and linear, we induced too much of a saw-tooth pattern in forward rates, even though the yields implied by these forward rates looked reasonable. In this post, we turn to Example D, in which we seek to “take the teeth out of the saw tooth pattern” by requiring that the first derivatives of the curve segments we fit be equal at the knot points. We use a quadratic spline of yields to achieve this objective, and we optimize to produce the “maximum tension/minimum length” yields and forwards consistent with the quadratic splines. Finally, we compare the results to the popular but flawed Nelson-Siegel approach and gain still more insights on how to further improve the realism of our smoothing techniques.
December 7: BIS Quarterly Review - December 2009
The BIS Quarterly Review released today is divided into two parts. We begin with an overview of recent developments in financial markets, before turning in more detail to highlights from the latest BIS data on international banking and financial activity. This is followed by five special feature articles: the first discusses the use and limitations of macro stress tests; the second analyses the relationship between monetary policy and risk-taking by banks; the third provides estimates of the link between government size and macroeconomic stability; the fourth draws lessons from loan provisioning regimes set up in Asia after the crisis of the late 1990s; and the fifth looks at factors driving the appreciation of the US dollar in late 2008.
December 4: Energy Risk - Copenhagen, Ongoing Uncertainty for the Utility Industry or New Direction?
From December 7 to 18, delegates will gather at the United Nations Copenhagen Summit. The theme of the 12-day meeting is climate change, and all eyes and ears will be on President Obama's remarks about where the United States is heading on this issue. Indications are that President Obama will announce the United States will target a 17 percent reduction in greenhouse gas (GHG) emissions below 2005 levels by 2020.
December 4: Market Risk - US Long-Term Rates Set Another Low
Freddie Mac yesterday released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 4.71 percent with an average 0.7 point for the week ending December 3, 2009, down from last week when it averaged 4.78 percent. Last year at this time, the 30-year FRM averaged 5.53 percent. The 30-year has never been this low since Freddie Mac began its weekly survey in 1971.
December 4: Job at Risk - Extended Jobless Recovery Likely for the Back Office
Nearly 1.4 million back office jobs will be lost at the world’s largest companies between 2008-2010, according to a new study from The Hackett Group. These losses are just part of a longer-term trend that started in 2001 and will result in nearly 3.6 million general & administrative (G&A) jobs being eliminated by 2014.
December 4: Regulatory Risk - Inadequate Laws Expose Whistleblowers and Impede Fight Against Corruption
Most of the 10 European countries included in a new report by Transparency International (TI) lack adequate laws to protect whistleblowers who often take risks and brave possible sanctions to expose wrongdoing, including corruption.
December 4: Speech – Schapiro on the Consumer in the Financial Services Revolution
The following are remarks of SEC Chairman Mary L. Schapiro to the Consumer Federation of America 21st Annual Financial Services Conference.
December 4: Job at Risk - Why the Government Jobs Policy Isn’t Working
The U.S. economy is going to be sick until job growth returns and unemployment is significantly reduced. President Obama’s economic team doesn’t seem to know how to stimulate jobs growth and what they have tried so far isn’t working very well. While Obama’s policy seems to have stopped jobs from disappearing, that is very different from actually creating jobs and reducing unemployment.
December 4: Market Risk - CME Group Announces Dealer Founding Members for CDS Initiative
CME Group yesterday announced the initial group of dealer founding members supporting its credit default swap (CDS) initiative. The new members will be Barclays Capital, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, J.P. Morgan, Morgan Stanley, and UBS, each of whom has executed a non-binding term sheet with respect to the CDS initiative.
December 3: Speech – Geithner on OTC Derivatives Reform and Addressing Systemic Risk
The following is testimony by Treasury Secretary Timothy F. Geithner before the Senate Committee on Agriculture, Nutrition and Forestry hearing on OTC Derivatives reform and addressing systemic risk.
December 3: Energy Risk - Energy CFOs Expect to Feel Impact of Recession at Least Six More Months
According to a new study one of the nation’s leading accounting and consulting organizations, 40 percent of chief financial officers (CFOs) at oil and gas exploration and production companies don’t expect access to credit to improve until the second half of 2010. An additional 31 percent believe conditions won’t improve until between 2011 and 2012.
December 3: Industry Risk - Economic Pressure and Event Risk Will Drive US Healthcare's Negative Outlook in 2010
Fitch Ratings' 2010 outlook for the U.S. healthcare sector remains negative. Persistently high unemployment with its impact on health insurance coverage along with consumer's lessened ability to manage out-of-pocket costs of co-payments and co-insurance will continue to hamper prospects for the industry, in general, in 2010.
December 3: Country Risk – Spencer Dale Reviews 2009 Economic Year
In a speech given yesterday to the Essex branch of the Institute of Directors, Spencer Dale – Chief Economist and Executive Director for Monetary Analysis and Statistics – discusses the policy response to the economic downturn, evidence that the economy has stabilised, and the prospects for 2010 and beyond.
December 3: Industry Risk - US Credit Card Delinquencies Test Highs
Late payments on outstanding U.S. credit card balances rose again last month falling just shy of record highs as U.S. consumers continue to struggle with debt loads amid the weak employment situation.
December 3: Operational Risk - Amid the Downturn, Firms Look to Information Technology to Restore Strength
A majority (72 percent) of business and information technology (IT) executives say their organizations place greater value on the IT function today than they did before the economic crisis. What's more, they view IT as an important part of their economic recovery efforts.
December 2: Operational Risk - ISDA to Publish Auction Terms for Thomson in Respect of Bankruptcy Credit Event
ISDA announced yesterday that its EMEA Credit Derivatives Determinations Committee resolved that a bankruptcy credit event occurred in respect of Thomson.
December 2: Book Review - High Frequency Trading, a Practical Guide to Algorithmic Strategies and Trading Systems by Irene Aldridge
In today’s securities markets, high-frequency trading has become the new standard; it comprises the majority of trading volume and it is one of the hottest topics in finance.
December 2: Market Risk - Adam Posen Speaks on Finding the Right Tool for Dealing with Asset Price Booms
In a speech at the MPR Monetary Policy and Markets Conference in London yesterday, Adam Posen – an external member of the Bank’s Monetary Policy Committee – discusses how asset price booms might be addressed in the future. He rejects the notion that monetary policy should be used to tackle asset prices, and believes other tools are needed and better suited for the task.
December 2: Credit Risk - First Deterioration in Corporate Credit Quality in 8 Months
Kamakura Corporation announced yesterday that the Kamakura index of troubled public companies increased in November for the first time in the last 8 months. The index jumped from 10.68% in October to 11.45% in November. Kamakura’s index had reached a peak of 24.3% in March.
December 2: DvD Insights - Basic Building Blocks of Yield Curve Smoothing (Part 5), Linear Forward Rates and Related Yields versus Nelson-Siegel
In Part 5 of our series on the basic building blocks of yield curve smoothing, we make another adjustment of the constraints we’ve imposed on the “best” yield curve. We find that our criterion for best implies linear segments for forward rates, as in the linear yield example in Part 4. The related yields, however, are not linear. We again compare the results to the popular but flawed Nelson-Siegel approach and gain still more insights on how to further improve the realism of our smoothing techniques.
December 2: Operational Risk - ISDA Develops Three-Layered Governance Structure for Derivatives Industry Market Practice and Post-trade Activities
ISDA yesterday announced that it has developed a governance structure for the privately negotiated derivatives industry’s market practice and post-trade activities. The industry’s governance structure determines its relationships with other stakeholders, including regulators and vendors, as well as other infrastructure providers.
December 2: Commentary - Dubai World’s Announcement is the Perfect Example of How Not to Deal With International Capital Markets
Last week the world of finance was shocked by Dubai government’s announcement that unlike what many had thought were promises that outstanding debts will be repaid plus interest there is a good chance that many bond holders in Dubai World, among other government controlled entities, could end up holding worthless papers.
December 1: Energy Risk - New Life for Nuclear
Although the construction of any new nuclear plant is at least a decade away, power plant owners are slowly adding to the fleet in small increments, or uprates. Through dozens of uprates using efficiency gains, technological improvements and regulatory changes, power plants can increase their output from 2 percent to 20 percent based on a variety of factors.
December 1: Industry Risk - As Credit Woes Ease, Cash Flow and Pension Plan Volatility Are Among Top Finance Executives’ Concerns
While the worst of the financial crisis's impact on their firms may be behind them, most finance executivesremain concerned about several financial and risk management issues, most notably cash and cash flow, and defined benefit (DB) pension plan volatility.
December 1: Market Risk - Hedge Fund “December Effect”
Hennessee Group believes the equity markets are likely to continue their momentum heading into the end of the year and lead to additional gains for investors during the month of December.
December 1: Industry Risk - CRE Lending Conditions Deteriorated Further in Q3 2009
CRE lending conditions for the nation’s community banks worsened again in the third quarter of 2009 compared to the second quarter of the year. Conditions in the industrial sector posted the largest decline, falling 21.2%.
December 1: Economic Risk - Business Optimism Index Reports Little Change with US Senior Executives
More business leaders say that their companies plan to increase staffing in the next six months – up to 30 percent from 26 percent in August. However, the business leaders’ outlook for the future continues to shift, with only one-third (33%) now saying that they expect the economy to come out of recession by the first half of 2010, compared to 58 percent in August 2009.
December 1: Interview - Liquidity vs. Solvency, Interview with Bob Eisenbeis and David Kotok
The instrument is called contingent capital and has recently become the latest fad among regulators both in the US and abroad. It has even been incorporated into Senator Dodd's recently introduced financial regulatory reform bill as a means to bolster bank capital positions. Sounds like a good idea, right? Especially if an institution can be recapitalized at no cost to the taxpayer. The instrument is billed as providing an additional buffer should an institution fall on hard times. But does it really and is it the panacea that regulators see?
December 1: Commentary - Basel and the Illusion of Capital Strength
In the post-crisis analyses of the financial system, governments and regulators may disagree on the merits of narrow banking or a Tobin-style tax on financial transactions. But all agree that that the crisis exposed an undercapitalized banking sector. Under the reforms of the Basel framework, there will be significant increases in the capital banks are required to hold. However, one of the great ironies of the crisis is that, ahead of its impact, the banking system appeared well-capitalized. Banks were reporting capital ratios well above the minimum levels required under Basel 1. And Basel 2, due to be implemented just as the crisis hit, proposed no overall increase in the level of capital held by the banking sector.
November 30: Market Risk - US 30-Year Rates Match All Time Low Last Week
Freddie Mac last week released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 4.78 percent with an average 0.7 point for the week ending November 25, 2009, down from last week when it averaged 4.83 percent. Last year at this time, the 30-year FRM averaged 5.97 percent. The 30-year has not been this low since the week ending April 30, 2009, when it averaged 4.78 percent.
November 30: Energy Risk - Fortunes in Cap-and-Trade
Although the electric industry has endorsed the concept of cap-and-trade as the least onerous approach to carbon regulation, at least one major company endorses it with unalloyed enthusiasm. Exelon not only supports the idea, it stated in a second-quarter conference call to analysts, which it posted to its Web site, that it expects to see a "$1.1 billion and growing annual upside to Exelon revenues from implementation of Waxman-Markey." Is that number real or simply wishful thinking? Does Exelon know something that's escaped the rest of us?
November 30: Commentary - The Limits to Fundamental Conviction, Clarium Capital
In August 2007, perfectly catching the first public intimations of a financial downwave global macro manager Clarium Capital, then of San Francisco, dispatched a manager letter that took a negative view on economic growth, real estate and the stock market. In the letter they wrote ""We have begun a post-Long Boom phase that can be called the Long Goodbye. Returns during the Long Goodbye will be lower -- perhaps half as much -- than those of the Long Boom."
November 30: Commentary – Are You Prepared for Another Lost Decade?
Our opinion, based on extensive studies of previous secular bear markets, strongly suggests that investors should anticipate another “Lost Decade”. As we will explain in more detail later in this report, 2009 could mark only the mid-point in this secular bear market. The report will also describe the historic characteristics of long-term secular bear markets and when to anticipate the end of the current secular bear market. Subsequent updates will cover the low-risk money management techniques we have successfully employed in growing client portfolios for the last 10 years. Forewarned and armed with this knowledge, you will be better prepared for the investment battle that lies ahead. Now more than ever investors cannot afford to sit back and relax, but should prepare for another “Lost Decade”.
November 30: Regulatory Risk - Walker Review Recommends Extensive Reforms to Strengthen Bank Governance and Increased Disclosure on Pay
Sir David Walker has recommended overhauling the boards of banks and other big financial institutions by strengthening the role of non-executives and giving them new responsibilities to monitor risk and remuneration. He also recommends a stewardship duty on institutional shareholders to play a more active role as owners of businesses.
November 25: Operational Risk - FSA Fines Nomura £1.75m for Inadequate Systems and Controls
The Financial Services Authority (FSA) has fined Nomura International Plc (Nomura) £1.75m for widespread systems and controls failings around book marking within its International Equity Derivatives (IED) business.
November 25: Market Risk – US House Prices Increase Slightly in Third Quarter
U.S. house prices rose modestly in the third quarter of 2009 according to the Federal Housing Finance Agency’s (FHFA) seasonally adjusted purchase-only house price index (HPI). The HPI, calculated using home sales price information from Fannie Maeand Freddie Mac-acquired mortgages, was 0.2 percent higher on a seasonally adjusted basis in the third quarter than in the second quarter of 2009.
November 25: Credit Risk - New Report Discusses How Banks Help Companies Generate Internal Cash
Small businesses and mid-sized companies struggling to secure credit due to the lingering effects of the economic recession should be exploring alternative methods of generating critical cash. In particular, a new report from Greenwich Associates explains that executives at these businesses should be pressing their banks for help in freeing up internal cash by more effectively managing their working capital.
November 25: SoberLook - China Waiting for the US Consumer
Each year the meetings of the China's Communist Party heads concludes with the same number - the number 8. Culturally it's an important number in China. In Chinese mythology for example it represents the Eight Immortals. It is also consistently the target for China's GDP growth - year after year.
November 25: Operational Risk - From Soup to ... Corporate Social Responsibility, Campbell's Efforts to Lead the Way
Since 1869, Campbell Soup Company has transformed tomatoes, celery and carrots, among other ingredients, into mainstays of the American lifestyle. But as the culture wars in the U.S. have escalated, any company -- even a seller of soup -- can count on drawing fire from all sides of the political spectrum. When that firing starts, Dave Stangis, Campbell's vice president of corporate social responsibility (CSR), will be standing at ground zero.
November 24: Energy Risk - The Cleansing Process
The U.S. coal-fired electric power industry is without doubt facing ever-increasing challenges in its efforts to remain a viable fuel. Impending legislation and regulations concerning allowable carbon dioxide emissions, in whatever form these rules might ultimately take, are putting growing pressure on coal-burning utilities to invest in carbon-capture technology research and to diversify their energy portfolios.
November 24: Country Risk - Economic and Financial Market Update, November 2009
The tide has turned for the global economy with U.S. real GDP posting a stronger-than-expected increase and China recording a breathtaking 8.9% jump in output, both in the third-quarter. Canada, the United Kingdom and the Eurozone have yet to produce clear indications that their economies are out of recession, but conditions are improving and we expect reports of positive growth soon.
November 24: Industry Risk - European Retail Investors Regaining Appetite for Risk
Intermediary distributors of investment funds in Europe say their retail clients have rediscovered an appetite for risk and are looking to boost returns with new investments in “high risk” equity products and fixed-income credit products. Conspicuously absent from this resurgent demand among retail clients, however, are hedge funds, which remain strongly in favor among institutional investors.
November 24: Regulatory Risk - Macro Prudential Tools Vital to Future Financial Stability
Lord Turner, chairman of the Financial Services Authority (FSA), yesterday said that reforms to the regulation and supervision of individual financial firms need to be combined with new macro prudential tools to guard against the risks of future financial instability.
November 24: SoberLook - The World According to Fed, Resolving Large Financial Institutions
In order to address the "too large to fail" issue the Fed has begun a campaign to promote their solution: some form of a resolution regime for systemically significant financial firms. The Fed's goal is to broaden their regulatory reach and to prevent the US Congress (filled with populist fervor) from trimming the Fed's power. What the Fed is proposing is actually a complex piece of legislation that will span beyond the banking industry. It has the potential to engulf large insurance firms, financial advisory and securities firms, and even asset management firms.
November 24: Interview - Is that a Bubble in Your Natural Gas? Interview with Jim Lucier
You may recall that last year we featured an interview with Jim Lucier about the energy outlook in the US. In that discussion, James focused on electricity and the huge supply of gas hydrates off the coast of the US, sufficient supply to meet the needs of the US economy for centuries. But the fact of offshore gas deposits has been overshadowed by reports of a technology breakthrough that would make existing onshore gas fields productive for decades longer. This made the outlook for gas supplies brighten even further and forced gas prices lower. But now Dizard believes that much of the hoopla concerning the viability of extracting gas from shale deposits is leading investors to a dry hole.
November 24: DvD Insights - Basic Building Blocks of Yield Curve Smoothing (Part 4), Linear Yields and Forwards versus Nelson-Siegel
In Part 4 of our series on the basic building blocks of yield curve smoothing, we tweak our constraints on the “best” yield curve and find that our criterion for best implies linear segments for both yields and forwards. We compare the results to the popular but flawed Nelson-Siegel approach and gain insights on how to further improve the realism of our smoothing techniques, a step forward we will make in part 5 of this series.
November 23: Tutorial – Point-and-figure Chart
A point-and-figure chart shows filtered price movements of a stock over time and is used by technical analysts to determine price support and resistance levels for a given stock.
November 23: Energy Risk - Stocking Up on Carbon Credits
Business has slowed. And so too has the demand for carbon emission allowances -- those credits that are traded among European nations and some American utilities as a way to motivate a transition to a carbon-free global economy.
November 23: Economic Risk - Financial Advisors Neutral on US Economy, Bearish on Obama Administration
Brinker Capital last week released results of the third quarter Brinker Barometer, a gauge of financial advisor confidence and sentiment regarding the economy, retirement savings, investing and market performance.
November 23: Conrad Voldstad Appointed Chief Executive Officer of ISDA
ISDA last Friday announced that its Board of Directors has appointed Conrad P. Voldstad as Chief Executive Officer.
November 23: Operational Risk - The Risk of “Unintended Consequences” is the Most Important Issue Facing US Equity Markets
As the US equity markets approach 2010, investment banks are putting their houses in order, trading volumes are surging and the floods of balance sheet losses and asset devaluations from 2008 have receded. But the calm after the storm can be deceiving.
November 23: DvD Insights - Basic Building Blocks of Yield Curve Smoothing (Part 3), Stepwise Constant Yields and Forwards versus Nelson-Siegel
In this installment of our yield curve smoothing series, we choose a common definition of “best” yield curve or forward rate curve and a simple set of constraints. We derive from our definition of “best” and the related constraints the fact that the “best” yield curve in this case is stepwise constant yields and forward rates. We then show that even this simplest of specifications is more accurate and “better” by our definition that the popular but flawed Nelson-Siegel approach.
November 20: Job at Risk - 2010 Compensation Budgets Dip Slightly from Original Projections, But Planned Salary Freezes and Reductions Drop Dramatically
Unlike last year, most U.S. companies are keeping their compensation budgets intact for 2010, making just minimal changes to salary increases and employee bonuses. In addition, the number of companies planning to freeze or reduce salaries has declined dramatically compared to last year, as companies cautiously anticipate signs of an economic recovery.
November 20: Operational Risk - ISDA to Publish Auction Terms for Hellas II
ISDA announced that its EMEA Credit Derivatives Determinations Committee resolved that a bankruptcy credit event occurred in respect of Hellas Telecommunications (Luxembourg) II.
November 20: Country Risk - New Business Risks in 2010 Brought by Global Economic Recovery
The report assesses global business risks by region and country for the upcoming year. Against a backdrop of uneven and uncertain economic recovery, new social risks and security issues will present corporations with a different and more complex risk terrain.
November 20: Market risk - US 30-Year Rates Near Record Breaking Levels
Freddie Mac yesterday released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 4.83 percent with an average 0.7 point for the week ending November 19, 2009, down from last week when it averaged 4.91 percent. Last year at this time, the 30-year FRM averaged 6.04 percent.
November 20: Speech – Geithner on Regulatory Reform
The following is testimony by Secretary of the Treasury Timothy F. Geithner before the Joint Economic Committee Financial Regulatory Reform.
November 20: Country Risk - Paul Fisher Discusses The Bank of England’s Balance Sheet, Monetary Policy and Liquidity Provision During the Financial Crisis
In a speech made yesterday at the Professional Pensions Show in London, Paul Fisher – Executive Director Markets and member of the Monetary Policy Committee – uses the Bank of England’s balance sheet as a framework to describe the innovative operations undertaken by the Bank during the financial crisis.
November 20: Commodity Risk - Gold Demand Remains Robust as Economic Conditions Improve
Total identifiable gold demand for the third quarter 2009 reached 800.3 tonnes or US$24.7 billion in dollar terms, up 15% from the second quarter, as gold’s long-term store of value and wealth preservation qualities continued to attract investors and consumers. Jewelry and investment demand in non-western markets rebounded from the very low levels seen in the first quarter, while industrial demand started to recover in response to an improvement in economic conditions.
November 20: SoberLook - The Exciting New World of ETFs
The ETF world is becoming more crowded and competitive every day. ETFs have become an extremely popular product with both the individual investors as well as various institutional players. The reasons are plentiful - from instant access to index exposure, to an easy way to enter markets such as China, to a simple way to take a macro view (for example in commodities), or to simply obtain leverage. One of the key reasons institutions love ETFs is liquidity.
November 19: Energy Risk - Ex-Im Bank’s New Carbon Policies
Green technologies will soon get greater export assistance. The U.S. Export-Import Bank is touting its newfound policy, although it is the direct result of a lawsuit filed more than six years ago by environmentalists and cities.
November 19: Country Risk - Canada's Headline Inflation Rate Pops into Positive Territory
Canada's headline inflation rate emerged in October from a four-month period of negative readings as the deflationary pressures coming from movements in the energy component of the CPI dissipated.
November 19: Country Risk - Surprise Drop in US Housing Starts, Inflation Up More than Expected
October housing starts unexpectedly dropped a sizeable 10.6% to an annualized 529,000 units from 592,000 in September. Expectations going into the report had been for starts to rise modestly by 1.7% to an annualized 600,000.
November 19: Market Risk - London Stock Exchange to Launch New Retail Bond Market for the UK
The London Stock Exchange yesterday announces that it will introduce a new order-driven trading service for bonds. This new electronic order book will be available for a select number of gilts and UK corporate bonds and will offer private investors with an on-screen secondary market in London-listed debt securities for the first time.
November 19: Commentary - China Doesn't Like Carry Trade
A carry trade is when you borrow from a currency with a low interest rate, and then invest in a currency with a higher interest rate. Say the US interest rate is 3%, and the Chinese interest rate is 5%. Borrow at 3%, invest at 5%, make 2%, because the Chinese yuan is pegged to the dollar at a fixed rate. Easy!
November 18: Regulatory Risk - Andrew Bailey Remarks on Recovery and Resolution Plans
In remarks made yesterday at the Santander International Banking Conference in Madrid, Andrew Bailey – Executive Director for Banking Services and Chief Cashier – discusses the role of Recovery and Resolution Plans (RRPs) as part of the response to the banking crisis. He notes that “…fire prevention is better than fire-fighting.
November 18: Economic Risk - US Industrial Production Slows
Industrial production slowed to a 0.1% pace in October following September’s 0.6% (revised from 0.7%) increase. A somewhat stronger 0.4% rise had been expected. Manufacturing declined 0.1% following three consecutive monthly increases.
November 18: Market Risk - US Futures Markets Are in the Crosshairs of the Algorithmic Revolution
Electronic market makers, hedge funds and long-only asset managers alike are forging algorithmic trading strategies with futures woven deep into their core. These strategies include a new trading concept, multi-dimensional arbitrage (MDA) that symbolizes this rising cascade of automation, representative of the “next generation” of trading opportunities.
November 18: Credit Risk - Commercial Real Estate Exposure Credit Risk Higher for US Mid-Size and Smaller Banks
Regional mid-size and smaller banking institutions have greater credit risks associated with declines in commercial real estate portfolio performance with downgrades likely for some of these banks. For the U.S. banking sector overall, CRE exposure remains a sizable but generally manageable risk, particularly among the largest financial institutions.
November 18: Regulatory Risk - President Obama Establishes Interagency Financial Fraud Enforcement Task Force
The task force’s leadership, along with representatives from a broad range of federal agencies, regulatory authorities and inspectors general, will work with state and local partners to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, address discrimination in the lending and financial markets and recover proceeds for victims. The task force will build upon efforts already underway to combat mortgage, securities and corporate fraud by increasing coordination and fully utilizing the resources and expertise of the government’s law enforcement and regulatory apparatus.
November 18: Job at Risk - Influence with Impact, What Differentiates Top Leaders
Influence is the primary tool leaders have to create alignment and build commitment across a diverse constituency. Research found that the most effective leaders leverage four core influence tactics to gain commitment and buy-in to their plans and proposals.
November 18: SoberLook – Reflections on the Crisis
Here is an interesting take on the financial crisis - a paper from William Sahlman called Management and the Financial Crisis (We have met the enemy and he is us …). It's a broad overview with some unique perspectives.
November 17: Energy Risk - New Markets for Coal
It's a revolution that began in South Africa and which has spread to China. Now, it's come to the United States where coal-rich states are trying to find new markets for their product and namely in the transportation sector.
November 17: Operational Risk – US Federal Agencies Struggling to Meet Transparency Requirements
The study indicates that less than half -- 43% -- of respondents believe their agencies could meet federally-mandated transparency requirements today. Additionally, the study's findings suggest that the federal government itself currently lacks the ability to ensure agencies are in compliance with American Recovery and Reinvestment Act (ARRA)-funded requirements to provide timely and specific spending and performance data and establish internal controls to meet new accountability objectives.
November 17: Energy Risk - Incorporating Self Service and Social Media into Customer Service Strategies
Customer service strategies encompass more than contact centers. The addition of IVR and e-mail options adds self-service opportunities to the utility industry. Expanding multi-channel service are social media options like Facebook, online chat, Twitter, text notices, etc. Many of these methods allow for self-help service to be interactive and similar to the two-way dialogue available with a live CSR.
November 17: Economic Risk – Paul Tucker Reviews the Crisis Management Menu
In a speech opening a conference on ‘Crisis Management at a Cross Roads’ in Brussels yesterday, Paul Tucker – Deputy Governor for Financial Stability and a member of the Monetary Policy Committee – reviews the various components of a crisis management package for financial institutions. That includes central bank liquidity insurance for viable firms and markets; firm recovery plans and contingent capital; resolution plans for winding down failed institutions; and official-sector support operations, including Capital of Last Resort.
November 17: Commentary - Loan Growth at Public Expense, Jack Sustman on the Vortex as Market Descriptor
This week in The Institutional Risk Analyst we feature an essay by Jack Sustman, Managing Director of the Institute for Enterprise Finance, on why the vortex is a better model for market crises than bubbles. We've always favored entropy over bubble-talk as a conceptual framework for describing market behavior, so we found Jack's discussion of the vortex as a metaphor for risk events compelling.
November 17: SoberLook - When Correlation Strikes
Here is a great example of the flaw in risk models that rely on historical correlations.
November 17: DvD Insights - Basic Building Blocks of Yield Curve Smoothing, Part 2: A Menu of Alternatives
In Part 1 of our series on the basic building blocks of yield curve smoothing, we listed 13 different approaches one could take to smoothing yields or forward rates. In this installment, we talk about how the definition of “best” yield curve or forward rate curve and the constraints one imposes on the resulting yield curve implies the mathematical function that is “best.” This is the right way to approach smoothing. The wrong way to approach smoothing is the exact opposite: choose a mathematical function from the infinite number of functions one could draw and argue qualitatively why your choice is the “right one.” In this post, we discuss the definition of “best” yield curve and the constraints commonly placed on the smoothing process.
November 16: Energy Risk - Curbing Construction Costs
In recent years, power companies have paid increasingly higher building costs that have been largely predicated on volatile fuel prices as well as escalating raw material and skilled labor costs. Bleaker economic times, however, have blunted the trauma and led to a relative decline in construction-related expenses.
November 16: Industry Risk - Jon Pain Addresses Mortgage Industry on FSA's Mortgage Market Review Proposals
Speaking at the Council of Mortgage Lenders’ Annual Conference, Jon Pain, the Financial Services Authority’s (FSA) managing director of Supervision, said it is important to acknowledge that although the mortgage market worked well for many, it failed for a significant minority. Therefore, the priority must be to move towards a market that is flexible, sustainable for all and works for consumers.
November 16: Operational Risk - SEC Charges Madoff Computer Programmers
The Securities and Exchange Commission last week charged two computer programmers for their role in helping convicted Ponzi schemer Bernard L. Madoff cover up the fraud at Bernard L. Madoff Investment Securities LLC (BMIS) for more than 15 years.
November 16: Energy Risk - Challenges in Payments Area Emerge as Smart Grids Take Shape
Impacts of a difficult economy. Increased regulation. Consumers demanding many more payment options. Aging IT resources. Uncertainty about what smart grids will bring. These are some of the many challenges facing utilities in 2009, and the pressure will only continue into 2010 and beyond
November 16: Market Risk - CB Arbitrage, is it Becoming Institutionally Uninvestable?
In 2003 convertible bond arbitrage was a core hedge fund strategy. Everyone who invested in hedge funds invested in CB arb funds. There had not been a down year for CB arb funds since the year of the LTCM crisis, 1998. On an index basis CB arb had produced positive returns in 8 of the previous 10 years up to 2003, and in the positive years the returns were in the teens. It was indicative that 2003 was the year that a successful arb manager had a book about his strategy published.
November 16: DvD Insights - Basic Building Blocks of Yield Curve Smoothing, Part 1
After our last series of posts on yield curve smoothing, we had a very productive exchange with Leif Andersen of Bank of America, who’s done a nice paper on tension splines. We’ve also plunged into Bob Jarrow’s archives and are trying to unearth an unpublished gem of a paper that Prof. Jarrow and long-time research partner Tibor Janosi did in 2002.
November 16: Commentary - If Everything We Use as Benchmark and Advice is Faulty What is the Point of All this Information?
In the past few of weeks a number of startling suggestions have been made that pretty much shake one’s belief in collecting any kind of information or making any kind of suggestions using the information available. For me personally, the debate between the economics team of Goldman Sachs and Fathom Financial Consulting is not really that startling, though I will discuss it below just to highlight that anyone who actually understands economics knows that this argument is more about press attention than substance. What is fascinating is the number of people taking sides to support one or the other, as if either is even remotely close to reality.
November 13: Geithner OP-ED - The Road Ahead for APEC
In an op-ed piece appearing in today's Wall Street Journal Asia, Secretary of the Treasury Timothy Geithner, Indonesia's Minister of Finance Sri Mulyani Indrawati and Singapore's Minister for Finance Tharman Shanmugaratnam outline the importance of the agenda before Asia-Pacific Economic Cooperation (APEC) members, who meet this week in Singapore.
November 13: Commentary - Efficient Markets or Herd Mentality? The Future of Economic Forecasting
Ever wonder why you succumbed, yet again, to advertising hype or deceptive packaging and overpaid for a product? Or bought securities that you know were overvalued when the herd instinct was just too strong to resist? Such irrationality is the focus of behavioral economists, who appear to be gaining greater credibility in macroeconomic circles since the housing bubble of 2008 and the ensuing global financial meltdown.
November 13: Regulatory Risk – US Fed Prohibits Institutions from Charging Fees for Overdrafts
The Federal Reserve Board on Thursday announced final rules that prohibit financial institutions from charging consumers fees for paying overdrafts on automated teller machine (ATM) and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions.
November 13: Commentary - Why Insider Trading Is Hard to Define, Prove and Prevent
When federal prosecutors charged one of America's wealthiest people with insider trading in October, the case against Raj Rajaratnam and his firm, Galleon Group hedge fund, seemed notable for the types of evidence gathering investigators claimed to have used on the six defendants: bugged conversations and inside informants. Many allegations of insider trading are hobbled by weak evidence like suspicious stock trades just before key corporate announcements.
November 13: SoberLook - Implied Real Rate Tells a Story of Loose Monetary Policy and Asset Bubbles
There are numerous ways to measure how easy the monetary policy is at any particular time. Quantitative easing aside, one can look at the overnight rates as the simplest measure of stimulus levels. The Fed Funds rate fluctuating between 12 and 25 basis points feels sort of accommodative. Of course a better measure is the real rate, which is the nominal overnight rate less inflation.
November 13: Market Risk - US Long-Term Rates Fall to Lowest Level in Five Weeks
Freddie Mac yesterday released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 4.91 percent with an average 0.7 point for the week ending November 12, 2009, down from last week when it averaged 4.98 percent. Last year at this time, the 30-year FRM averaged 6.14 percent.
November 12: Energy Risk - Electricity’s Temporary Lull
It's not the ideal way to curb electricity usage. But the preponderance of energy sources saved in the last year is because of the economic recession. The rest is because of conservation and demand response.
November 12: Economic Risk - New Research Compares US vs. China Stimulus Packages
For the United States and most of the world, the financial crisis has overwhelmingly been a disaster, and has required emergency measures by governments around the world to prevent economic collapse. For China, however, the crisis has been more akin to an opportunity.
November 12: Industry Risk - FSA Proposes to Strengthen Prudential Standards for Credit Unions
FSA has yesterday set out its proposals for strengthening the financial resilience of the credit union sector and ensuring that its customers are adequately protected.
November 12: SoberLook - Corporate Lending Ready to Take Off, Just Need the Borrowers
Banks are ready to increase lending to corporations and will attempt to ramp their lending significantly in 2010. Here are the reasons.
November 12: Operational Risk - Galleon Edge Illegal, But Information Flows to Hedge Funds Can Be Important
The information that hedge fund groups use is a topic that comes into and out of focus. Recently it has been in the spotlight because of the Galleon-related indictments, but it has been a live issue as far back as Ivan Boesky's advanced receipt of deal-flow information in the mid 1980's. Over the years the buy-side has decreased its reliance on traditional sell-side research, partly because of Regulation FD. Also the reliance has been downplayed to put marketing emphasis on the prowess of in-house efforts in research - it is widely marketed as a differentiating factor in asset management pitches. These concepts apply even more so to the hedge fund business.
November 12: SoberLook - The Bipolar Nature of Inflation Expectations
Back in July we've discussed the tremendous uncertainty surrounding longer-term inflation expectations for the US. This is not an academic exercise. Getting it wrong could swing the US economy into a deflationary spiral (similar to Japan) at one extreme or a hyperinflationary environment on the other.
November 12: BIS - OTC Derivatives Market Activity for the First Half of 2009
The Bank for International Settlements has released its semiannual statistics on the global over-the-counter (OTC) derivatives market.
November 11: Market Risk - Good Fund Managers Time Investment Strategies to Economy’s Health
As of the end of 2008, $9.6 trillion was invested with investment professionals in the US. How can investors know their money is well managed? Three NYU Stern professors recommend picking money managers who shift their investment strategies over the course of the business cycle.
November 11: Operational Risk - Companies Make Innovation a Priority for Growth in Aftermath of Downturn But Management Shortcomings Hinder Results
Innovation is a top priority for companies seeking to grow in the wake of the economic downturn, but flaws in managing innovation may hinder their progress.
November 11: Commentary - RiskMetrics Goes Corporate
I always have admired RiskMetrics, because they offer straightforward advice about how to measure risk. My career as a risk manager started as an attempt to implement the then-new (1994) RiskMetrics Value-at-Risk methodology to the KeyCorp trading operations. Sure, for any nuanced strategy, they are 'academic', in that they do not understand a lot of parochial issues related to, say, risk arb, but for setting a benchmark, understanding certain tools are useful, and being clear, I give them an A+.
November 11: ISDA - Comments on Chairman Dodd’s Discussion Draft
In response to the Discussion Draft “Restoring American Financial Stability” proposed by Senate Committee on Banking, Housing and Urban Affairs Chairman, Chris Dodd, the International Swaps and Derivatives Association, Inc. (ISDA) yesterday made the following comment.
November 11: Commentary - Preliminary Q3 2009 Bank Stress Test Results, Looking for OTC Derivatives Reform
This week we feature a comment from a member of the Herbert Gold Society on the question of reforming OTC derivatives. It seems clear to us, at least, that the large New York banks are calling the shots on Capitol Hill in a way that they did in the 1920s. The hearings on OTC derivatives held before the House Financial Services Committee were so ridiculous and so slanted in favor of the large dealer banks that we held back our comments, but we commend this very well informed perspective to your attention.
November 11: Operational Risk - ISDA Publishes Common Principles for Give-Up Agreements for Central Clearing
ISDA yesterday announced that it has published a set of recommended common principles intended to guide documentation for give-up agreements across central counterparties (CCPs) or clearing houses.
November 11: Regulatory Risk - Dodd, Banking Committee Democrats Unveil Comprehensive Financial Reform
Senate Banking Committee Chairman Chris Dodd (D-CT) joined by fellow committee members unveiled a bill yesterday to reform the way that our financial system is regulated. Here is a summary of the highlights of the bill provided by the press office of the Senate Banking Committee.
November 10: Energy Risk - Coal Ash Reconsidered
Coal combustion waste may be reclassified as a hazardous waste. That's a significant change from its current categorization as a solid waste, which has created a secondary market for the byproduct in recycling circles.
November 10: Market Risk - Hedge Funds Decline -0.50% in October
Hennessee Group announced yesterday that the Hennessee Hedge Fund Index declined -0.50% in October (+20.12% YTD), whilethe S&P 500 fell -1.98% (+14.72% YTD), the Dow Jones Industrial Average was unchanged (0.00%) (+10.67% YTD), and the NASDAQ Composite Index declined -3.64% (+29.68% YTD).
November 10: Energy Risk - The Drive Behind Plug-Ins
With energy and environmental issues atop the national agenda, America may fundamentally change the way it drives. And the utility sector says that it can deliver. At issue is the plug-in hybrid that can run for about 40 miles on electricity before a traditional internal combustion engine fueled by gasoline would kick in.
November 10: Operational Risk - FSA Chief Says Cultural Change Needed to Drive Reform
Reform will only come if both the regulator and the regulated are committed to genuine change, according to Financial Services Authority (FSA) chief executive Hector Sants.
November 10: Commentary - PC Bias on Fort Hood Shooter Extends to Mortgages
How does this relate to finance? The Fed keeps easy to read data on mortgage rejection rates by race, but hides default rates by race, which has led to innumerable simplistic newspaper stories that have 'proved' rampant discrimination by banks.
November 10: SoberLook - Only the Strongest Survive (and Thrive) in the CP Markets
Money market funds continue to struggle to put cash to work, searching for product that would comply with pending new regulation, yet provide returns that are above treasury bills. The returns on money market funds continue to be pathetic - about 15-25 basis points annualized.
November 10: Commentary - Did the Stock Market Collapse Help Some Hedge Funds Mask More Serious Problems?
I think that this crash has provided us with a great opportunity to start asking whether it still makes sense to have a dark corner in the world of finance when even in the light areas people can take risks that pushed us to the brink of meltdown and will certainly do so again in the not so distant a future.
November 9: Energy Risk - LNG's Potential Luster
Liquefied natural gas has lost some luster. But its shine may soon return. While deflated natural gas prices are now making expensive investments in the super-cooled fuel less appealing, the demand for energy will eventually resume and therefore put pressure on national governments to find alternatives to coal.
November 9: Economic Risk - New Report Card on Economic Stimulus Package
Since its first Report Card in June, which graded the Obama Administration on its execution of stimulus objectives during the first 100 days of the ARRA, INPUT has made noteworthy updates to its evaluation. Contracting Effectiveness received the most improved grade, moving from a C- to a B based on federal agencies’ significant improvement in the use of fixed price contracts and in the percentage of contract awards to small businesses.
November 9: Commentary - Japan’s Demographic Time Bomb Is Imploding
According to Ambrose Evans-Pritchard Japan is quickly turning into developed world’s sickest economy and could soon tip into an uncontrolled downward spiral. Evans-Pritchard reported last week in the Telegraph that Japan is reaching the point of no return where it won’t be able to meet its obligations and could enter a debt death spiral.
November 9: SoberLook - Ginnie Mae and the Government Sponsored Mortgage Machine
A quick look at who is taking all the risk on new mortgages this year reveals some interesting facts. Very few mortgage loans are kept on banks' balance sheets these days - and that fraction seems to be shrinking. The private securitization MBS market is also down to a trickle, though is a higher fraction than the balance sheet loans.
November 9: DvD Insights - Comments on Risk Management at the Structured Credit Investor Third Annual Conference
More than 100 people gathered in New York on Wednesday for an excellent conference organized by Structured Credit Investor. I was a panelist for a session on risk management in the structured products business. Because the conference was “off the record,” I am sorry that I can only pass on my own remarks and not the more intelligent insights of my fellow panelists.
November 9: Commentary - Examining Risk Through A Different Lense...The Future and Culture of Risk
Lawmaker’s desire to increase home ownership, which reached its highest point right before the crisis, was and remains a worthy social goal. Unfortunately that pursuit created a lending feeding frenzy where no one wanted to be left behind. One result of the global financial crisis is now intense pressure from lawmakers, regulators and bank executives on risk managers. We should determine the causes of the global financial crisis to learn from the past and to avoid making the same mistakes in the future. However, the inclination to place blame can in some cases do more harm than good. One learning is we must to educate lawmakers, regulators and management on the limits and capabilities of our risk management tools and the need for continual investment to enhance them.
November 6: Job at Risk - 88% of Senior Financial Executives Believe Positions of CEO and Chairman of the Board Should Be Separate
In a national survey of U.S. CFOs and senior comptrollers, the vast majority (88%) believe that the positions of CEO and chairman of the board should be separate and more than half (52%) report that they would like to be CEO of a company one day.
November 6: Country Risk - Bank of England Maintains Bank Rate at 0.5% and Increases Size of Asset Purchase Programme by £25 Billion to £200 Billion
The Bank of England’s Monetary Policy Committee yesterday voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to continue with its programme of asset purchases financed by the issuance of central bank reserves and to increase its size by £25 billion to £200 billion.
November 6: Energy risk - On the Road Again, Report from the Final Day of the Smart Grid RoadShow
Yesterday marked the final day of the Smart Grid RoadShow's Baltimore conference. The event was a unique assembly of Smart Grid technology vendors and utilities forming a who's who of attendees. The day began with an impressive keynote breakfast address from Dr. Mani Vadari, Vice President of Energy Infrastructure at Battelle Labs, entitled, "Demand Response Innovations in Solving Utility Challenges."
November 6: Operational Risk - FSA Fines UBS £8 Million for Failing to Prevent Employees Carrying Out Unauthorised Transactions with Customer Money
The Financial Services Authority (FSA) yesterday fined UBS AG (UBS) £8 million for systems and controls failures that enabled four employees to carry out unauthorised transactions involving customer money on at least 39 accounts.
November 6: Market Risk - Preferred Stock Default Recoveries Approach Those of Senior Unsecured Bonds
Recovery rates on preferred stocks that have omitted dividends surpass those on junior subordinated bonds by nearly 50% when the omission is not followed by a general bond default. When the initial impairment is such a dividend omission, recovery rates on the preferred stock typically approach those on defaulted senior unsecured bonds.
November 6: Credit Risk - October Credit Derivatives Report
CDS markets moved modestly wider over the past month, as tightening momentum over the previous 6 months began to dissipate. Corporate markets were also more volatile over the month, as Q3 earnings season triggered creditors to reset their expectations. Volumes remained heavily dominated by financial sectors, as greater visibility brought about by company earnings sparked greater interest in the sector.
November 5: Energy Risk - Live from Baltimore, It's the Smart Grid RoadShow
Yesterday saw the opening of the Smart Grid RoadShow in Baltimore's beautiful Inner Harbor. This event marks the third installment of the semi-annual event, and it is off to a great start.
November 5: Industry Risk - Assets in Hedge Funds’ Managed Accounts to Rise Nearly 70% by 2011 Based on Efforts in Meeting Investor Concerns
The hedge fund industry, putting the frightening days of 2008 far behind them, are taking a series of steps to recapture assets. Addressing concerns over transparency, liquidity and fraud are top of the list.
November 5: Economic Risk – US Fed Keeps Language Consistent with Policy Rates Staying "Low for Long"
As expected the FOMC kept the target for the Fed Funds rate in the 0 to ¼ percent range and reiterated that the low level of the policy rate would likely be maintained "for an extended period." While their commitment to the "low rates for long" remains intact, the FOMC acknowledged that the US economic activity "continued to pick up" and that the combination of policy actions and "market forces" are likely to see the economy to continue to strengthen.
November 5: Commentary - Home Sick Shows How Work Incentives Matter
Last Wednesday the New York Times Economix Blog published an article written by Casey Mulligan that was billed as a summary of how work incentives change employee behavior. I expected Professor Mulligan to educate readers as to how work and compensation incentives change worker behavior and effect business. I quickly realized, however, that the real purpose of Professor Mulligan’s article was to criticize health care reform and take a cheap shot at Paul Krugman.
November 5: Market Risk - Long/Short Equity Hedge Funds Avoided Equity Market Downswings In October
Long/Short Equity fund managers avoided equity market volatility in October, finishing the month in neutral territory, according to Jordan Drachman, Head of Research for Alternative Beta Strategies at Credit Suisse.
November 5: Industry Risk - Signs of Stabilisation in Bank Systemic Risk
Fitch Ratings notes that although it is premature to say that bank systemic risk is easing, it is showing signs of stabilizing, albeit at a high risk level. In its latest semi-annual 'Bank Systemic Risk' (BSR) report, Fitch says that for the first time since the report was published in 2005, the changes in systemic risk indicators are relatively few and largely reflect technical changes rather than underlying changes in risk.
November 4: Energy Risk - Capex, Renewable Energy and Bank Liquidity Key to Utility, Power and Gas Sector Outlooks
Fitch analysts stated that against the backdrop of the recession and credit crisis that affected the U.S. and global economy, the U.S. utility, power and gas (UPG) sector held up very well with relatively few credit rating changes in the sector for the year 2009 to date.
November 4: Operational Risk - ISDA to Publish Auction Terms for CIT
ISDA yesterday announced that its Americas Credit Derivatives Determinations Committee resolved that a bankruptcy credit event occurred in respect of CIT Group Inc.
November 4: Industry Risk - P/C Industry’s Risk-Adjusted Capital Drops in ‘08
A recent four-year study of risk-adjusted capitalization found that the U.S. property/casualty industry experienced a 17 percentage point decline in this measure in 2008.
 |
Regular Features |  |
Escalating Risk Visibility - The Professional Risk Management View of the Role of the CRO 
Counterparty Risk in Structured Finance Transactions: Swap Criteria 
Risk Manager’s Toolkit - Sure-Fire Spreadsheet Tips and Tricks for the Practicing Risk Manager Enterprise Risk - Fighting Risk Measurement Myopia, Creating a Risk Inventory and Gap Analysis, and Dealing with Obstacles to Enterprise-Wide Risk Management Market Risk - Global Currency and Treasury Guide 
|
Informatica White Papers |
|
Land Grab, Winning the Coming Competition for Corporate Payments BusinessRecession-Proof the Business, The Top Five Ways IT Organizations Can Help Companies Survive a Tough Economy |
Hands-on Finance Tutorials |
|
Hands-on Finance Tutorial #7 – Balance Sheet Analysis Hands-on Finance Tutorial #6– Yield Curve Building 
Hands-on Finance Tutorial #5 - Historical Data Analysis, A Basic Trading Strategy Hands-on Finance Tutorial #4 - Fixed Income Fundamentals Hands-on Finance Tutorial #3 - Cash Flow and Equity Analysis Hands-on Finance Tutorial #2 - Foreign Exchange Fundamentals and Applications Hands-on Finance Tutorial # 1- Rates & Discount Factors |
Fusaro Tutorials | |
Tutorial - European Natural Gas, Towards a Competitive Market Tutorial - Weather Trading, Raising the Temperature in Monte Carlo Tutorial - Bandwidth Trading and Risk Management, Developing a Market Tutorial – Emissions, Trading in Practice Tutorial - Electricity Trading, Europe and North America |
BIS Working Papers | |
The Great Depression As A Credit Boom Gone Wrong Currency Crises And The Informational Role Of Interest Rates Principles For The Management And Supervision Of Interest Rate Risk Markets for Bank Subordinated Debt and Equity in Basel Committee Member Countries The Role of Central Bank Money In Payment Systems Risk Management Principles For Electronic Banking Overview of The New Basel Capital Accord |
Federal Reserve Bank Papers |
|
|
Global Reports | |
Weather Risk - Weather Data Verification Tables Corporate Defence Insights Full Series Corporate Defense Insights - Dispatches from the Front Line Risk Professional Compensation Survey Business Resilience - Ensuring Continuity in a Volatile Environment The CDM Paradigm Corporate Defence Management (CDM) Continuum 2006 Professional Compensation Survey, Risk Consulting 2006 Professional Compensation Survey, Corporate Risk An Executive Guide to Corporate Defense Management (CDM) Catastrophe Risk Management, Preparing for Potential Storms Ahead Japan, Discussions on Advancing Credit Risk Management through Internal Rating Systems Superstars or Average Joes? A Replication-Based Performance Evaluation of 1917 Individual Hedge Funds Regulatory Risk - Trends and Strategies for the CRO Risk Management Compensation Survey Operational Risk - Bank Capital, Agency Costs, and Monetary Policy What Does the Risk-Appetite Index Measure? Commentary – The New Player In The Risk SpaceGuide to the Sarbanes-Oxley Act, Internal Control Reporting Requirements |
RiskCenter Events | |
|
noname | |