Fri, Sep 19, 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   |   
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. SEC charges 19 investment firms and one trader for breach of Rule 105[more]

    Benedicte Gravrand, Opalesque Geneva: The Securities and Exchange Commission (SEC) started a push to enhance the enforcement of Rule 105 of Regulation M last year to uncover hedge funds and private equity firms that have illegally participated in an offering of a stock after short selling it duri

  2. Fund managers, bullish on Europe, anticipate monetary policy separation of Fed and ECB[more]

    Komfie Manalo, Opalesque Asia: At least 202 fund managers with $556bn of assets under management said that while the European Central Bank (ECB) has eased its monetary policy that sent sentiments towards Europe to pick up, the Fed is expected to hike its rate in the spring of 2015. Investor

  3. News Briefs - Limited partners of investment managers may be subject to self-employment taxes, Just one week left until NYC's Rocktoberfest[more]

    Limited partners of investment managers may be subject to self-employment taxes On September 5, 2014, the Internal Revenue Service (“IRS”) issued Chief Counsel Advice 201436049, concluding that members of an investment manager were subject to self-employment taxes with respect to their e

  4. Institutions - Adviser's faith in hedge funds unshaken by CalPERS' move Advisers weigh in on CalPERS’ decision, Gina Raimondo sees no reason to follow California’s lead, exit hedge funds, Danish pension funds step up 'alternative investments'[more]

    Adviser's faith in hedge funds unshaken by CalPERS' move From WSJ.com: Financial advisers who use hedge funds in their clients' portfolios say they aren't rethinking that approach after a huge California pension fund announced plans to exit the hedge-fund market. The decision by the Cali

  5. Short Selling - Notorious U.S. short-seller targets Alibaba[more]

    From Wantchinatimes.com: A notorious American short-seller appears to have "targeted" Chinese internet giant Alibaba on the eve of its historic public listing on the New York Stock Exchange, reports Chinese web portal Hexun. Alibaba's highly-anticipated listing on Friday could potentially be the big