- CPSS: Paul Tucker appointed Ch
- By the end of 2012, all standardised over-the-counter (OTC) derivatives must be cleared with central counterparties (CCPs).
- Paper estimates the amount of collateral that CCPs should demand to clear safely all interest rate swap and credit default swap positions of the major derivatives dealers.
- Results suggest that major dealers already have sufficient unencumbered assets to meet initial margin requirements, but that some of them may need to increase their cash holdings to meet variation margin calls.
- Default funds worth only a small fraction of dealers' equity appear sufficient to protect CCPs against almost all possible losses that could arise from the default of one or more dealers, especially if initial margin requirements take into account the tail risks and time variation in risk of cleared portfolios.
- Concentrating clearing of OTC derivatives in a single CCP could economise on collateral requirements without undermining the robustness of central clearing.
- B Mahapatra (ED, RBI): Implications of Basel III for capital, liquidity and profitability of banks
- The costs for Indian banks will be less than those for banks from other jurisdictions.
- Indian banks generally have only very small trading books or exposures to complex financial instruments - the effect of Basel III on their capital structure will be “insignificant”.
- More than 50% of Indian banks would be able to implement the Basel III capital requirements without any phase in, owing to already high levels of capital. This entails a far lower impact on banks’ return on equity than for US or European banks.
- Gains from recapitalizing the financial sector in response to large but rare net worth losses are as large as those from eliminating business cycle fluctuations.
- Also find that:
- gains are increasing in the size of the net worth loss,
- are larger when recapitalization funds are raised from the household rather than the real sector,
- may increase with a reduction in financial intermediaries idiosyncratic risk.
- Variables that proxy for credit risk and funding (il)liquidity consistently show up as common predictors of volatility across several asset classes.
- Variables capturing time-varying risk premia (such as valuation ratios for equities, or interest rate differentials in foreign exchange) also perform well as predictors of volatility.
- In contrast to these financial predictors, variables that proxy for macroeconomic conditions, are much less informative about future volatility.
- V K Sharma(ED, RBI): The framework for pre-empting systemic financial risks
- In India, we have had remarkable financial stability, not fortuitously, but thanks to pre-emptively and pro-actively delivered counter-cyclical prudential measures like the increase in risk weights for exposures to commercial real estate, capital market, venture capital funds and systemically important non-deposit accepting Non Banking Finance Companies (NBFCs).
- To contain potential systemic liquidity risk, the Reserve Bank has capped banks’ investments in Fixed Income Mutual Funds to 10% of their net worth.
- Monetary policy tools can also be deployed alongside the counter-cyclical prudential regulatory measures as a complementary companion tool to credibly, effectively and decisively address the build-up of systemic financial risks.
- The famous Taylor rule can be modified suitably to include, alongside inflation and GDP, additional terms representing systemic financial conditions based on the financial parameters for detecting asset bubbles and under-pricing of risks.
No comments:
Post a Comment