Mon, Jun 27, 2016
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   |   
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. Opalesque Roundup: Hedge funds shrink as liquidations outpace new launches in Q1: hedge fund news, week 27[more]

    In the week ending 17 May, 2016, HFR said hedge fund liquidations declined narrowly to begin 2016 after rising sharply to conclude 2015, as investors positioned f

  2. Europe - Hedge funds keep powder dry over big Brexit bets, Hedge funds sense profit in Europe shock waves after Brexit vote, Soros warns Brexit may cause pound plunge worse than Black Wednesday, After Brexit: What will happen if Britain votes to leave the UK?[more]

    Hedge funds keep powder dry over big Brexit bets From FT.com: Hedge funds are shying away from big bets on Brexit, with many unwilling to risk further losses having already suffered a painful first half of the year. With the outcome of a UK vote on the country’s membership of the Europea

  3. News Briefs - ’Flash Boys’ get green light to launch stock exchange, Pimco says ‘storm is brewing’ in U.S. commercial real estate, Bankers get ready to rumble at Hedge Fund Fight Night, AIMA Australia celebrates 15th anniversary[more]

    ’Flash Boys’ get green light to launch stock exchange In an investing environment ruled by fast, the newest U.S. public stock exchange is banking on slow. Well, slower. IEX Group, which won Securities and Exchange Commission approval on Friday to go head-to-head with the New York Stock E

  4. Blackstone buys minority stake in New York-based credit hedge fund Marathon[more]

    Benedicte Gravrand, Opalesque Geneva: Blackstone Strategic Capital Holdings Fund, a vehicle managed by Blackstone Alternative Asset Management (BAAM), has acquired a passive, minority interest in Marathon Asset Management, for an undisclosed sum. Based in New York,

  5. Global markets fell, hedge funds gain in mid-June on Brexit, Fed rate concerns[more]

    Komfie Manalo, Opalesque Asia: Global financial markets declined through mid-June, as uncertainty associated with the upcoming Brexit referendum and expected U.S. Fed interest rate hike contributed to increases in volatility across asset classes, data provider