Tue, May 30, 2017
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. Investing - China's HNA wants to invest in Value Partners, Risk parity investors reap rewards from rebalancing act, SoftBank's $100 billion tech fund rankles VCs as valuations soar[more]

    China's HNA wants to invest in Value Partners From Reuters.com: HNA Group has alighted on a logical, if pricey, target in Hong Kong. The deal-hungry Chinese travel conglomerate known for overpaying wants to invest in Value Partners, one of Asia's few sizeable independent asset managers,

  2. Opalesque Exclusive: Investors warm to ESG, but seek standardization[more]

    Bailey McCann, Opalesque New York: Asset managers and asset owners plan to double their investment in Environmental, Social and Governance (ESG) driven strategies over the next two years, according to a survey from BNP Paribas Securities Services. The report, "Great Expectations: ESG - what's nex

  3. Opalesque Roundtable: France's hidden strengths in AI and machine learning[more]

    Komfie Manalo, Opalesque Asia: All nations offer their strengths and weaknesses, but one that is undisputed is the quality of the French scientists, claimed Guillaume Vidal, co-founder of French technology startup Walnut Algorithms at the

  4. AI-based hedge fund brings machine learning investing to masses[more]

    Komfie Manalo, Opalesque Asia: Machine learning-based hedge fund firm Greyfeather Capital is trying to bring artificial intelligence investing to the masses with its plan to expand beyond the limited reach of the alternative investments space. "We're excited to bring AI technology to traditio

  5. Outlook - Iconic hedge fund manager Seth Klarman says investors are missing huge risks, Paul Singer warns of a world at risk[more]

    Iconic hedge fund manager Seth Klarman says investors are missing huge risks From Businessinsider.com: An iconic hedge fund manager says investors are misperceiving risks in the markets - at a time when markets are hitting historic highs. Baupost Group's Seth Klarman laid out his concern