Sun, Oct 26, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Finadium research: Corporate bonds and equities as high quality assets for collateral management and bank balance sheets

Monday, March 12, 2012
Opalesque Industry Update - The possibility has emerged that banks could use corporate bonds and equities for a broad swath of their high-quality liquid assets under Basel III. This would be an enlargement of a paradigm shift in the nature of risk in financial markets. Currently, Basel III requires that banks must have at least 60% of Level 1 assets, including cash and government bonds, and up to 40% of Level 2 assets, including agencies and the highest rated corporate bonds, to meet a critical component of the Liquidity Coverage Ratio (LCR). But what happens if the definition of Level 2 is stretched to include more corporate bonds and a new category for equities? Further, what happens if the LCR is changed to accept a greater quantity of Level 2 assets, or if corporate bonds and equities were to receive different risk-weightings for capital calculations?

This report looks at the possibility of change to Basel III recommendations and national capital regulations, some of which are already under active consideration, and the implications that this shift would have on bank balance sheets, collateral management and risk waterfalls. It also considers independent actions being taken by Central Counterparties in an attempt to make posting margin less difficult for their clients.

The acceptance of corporate bonds and equities would mark a significant change in the nature of risk and presumably risk-free instruments in financial markets. As government bonds become suspect as a consistent and reliable asset class, can corporate bonds with less than an AA rating and a broad swath of equities come in to take their place?

This report should be read by market professionals in liquidity and balance sheet management, and in repo, securities lending, OTC derivatives and other products that rely on cash and non-cash collateral.

This report is 28 pages with 11 exhibits. To obtain a copy, please contact Finadium at info@finadium.com. Corporate website: www.finadium.com

fg

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   

Banner

Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Commodities - Oil wreaking havoc on small-cap energy stocks sliding 36%[more]

    From Bloomberg.com: Owning almost anything in the U.S. stock market has been a losing proposition since September. Owning smaller energy companies has been a catastrophe. Hercules Offshore Inc. and Resolute Energy Corp. are among 19 oil-and-gas equities in the Russell 2000 Index that lost more than

  2. Investing - Hedge funds favor equity long/short, Strategic bond managers hedge against further high yield sell-off[more]

    Hedge funds favor equity long/short From Securitieslendingtimes.com: Equity long/short strategies will generate good returns for hedge funds in the future, according to a panel at this year’s Risk Management Association Conference on Securities Lending in Naples, Florida. Panellists Sand

  3. Legal - Ex-hedge fund analyst weeps as judge hands down 5 year sentence, Former Columbus investment manager Steven P. Moore indicted on theft charges, SEBI confirms ban for Hong Kong hedge fund, SEC announces enforcement action against compliance officer[more]

    Ex-hedge fund analyst weeps as judge hands down 5 year sentence From Hereisthecity.com: An ex-hedge fund analyst was sentenced to 5 years in prison for his role in insider-trading scheme. The New York Post reports that former hedge fund analyst Matthew Teeple was sentenced Thursday to fiv

  4. Goldman in talks to acquire IndexIQ[more]

    From Bloomberg.com: Can Goldman Sachs put ETF investors on a liquid diet? Goldman is in talks to acquire IndexIQ, Reuters has reported. Index IQ is a small exchange-traded-fund firm known mostly for products that replicate hedge fund strategies, called "liquid alternative" ETFs. While IndexIQ has 11

  5. Other Voices: CALPERS dilemma should be a warning to hedge funds wanting institutional investors[more]

    From Ian Hamilton, founder of IDS Group. A quick comment on the CALPERS’ disinvestment from the hedge fund market and the jitters it is causing. Pension Funds should not be sheep and follow CALPERS’ decision as the issues that CALPERS has with hedge fund investments are in many ways unique t