It wasn’t meant to be this way. When the mandarins at the Basel Committee on Banking Supervision mooted a sweeping overhaul of trading book capital rules, the intention was for banks’ advanced models to form a key part of the new regime.
The reality is very different. As the new rules come into force, only four banks are known to be applying to their supervisor to use advanced modelling for market risk: BNP Paribas, Deutsche Bank, Intesa Sanpaolo and Nomura. If internal models were a species
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After years in the shadows, the Federal Reserve’s discount window may finally be getting its 15 minutes of fame.
US banks could overcome their reluctance to be seen at the window if the Fed offers them renewed incentives to borrow, including fresh use of collateralised credit lines.
In March 2023, rapid outflows of deposits from Silicon Valley Bank and Signature Bank demonstrated the importance of banks being prepared to borrow from the discount window.
SVB had neither the systems nor the
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The European Union’s move to push back the start date for new bank capital rules on the trading book by one year to January 2026 has turned the spotlight on regulators in the US and the UK, where the requirements are still officially expected to take effect in July 2025.
The European Commission announced earlier today (June 18) that it had decided to delay implementation of the Fundamental Review of the Trading Book (FRTB), planned for January 2025, due to concerns that US regulators would fail
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Breaking up, as the song goes, is hard to do. And when the relationship in question is crucial for the smooth issuance of derivatives regulations, the estrangement is harder still.
This month, Risk.net examined the current state of the Commodity Futures Trading Commission (CFTC) and drew attention to what our sources – including 12 current and former officials and commissioners – described as an agency paralysed by a divided majority.
The divisions are between chairman Rostin Behnam and his fellow Democratic commissioners, Christy Goldsmith Romero and Kristin Johnson. The resulting frictions may help explain why the pace of rulemaking and routine business at the CFTC have slowed in recent years.
Last week, US President Joe Biden announced his intention to appoint the two dissenters to new positions: Goldsmith Romero as chair of the Federal Deposit Insurance Corporation (FDIC) and Johnson as assistant secretary for financial institutions at the Department of the Treasury.
However, it is not clear that suitably screened replacements are waiting in the wings to take over from them at the CFTC.
In March, Behnam set himself the goal of holding votes on all outstanding rule proposals. The developments of recent weeks therefore have the potential to create deadlock ahead of November’s general election. Republicans on the commission would have an effective veto over the chairman’s agenda if Goldsmith Romero and Johnson were confirmed in their new posts while their seats on the CFTC remained unfilled. If there were a 2-2 split on the committee, the chairman’s proposals would not be adopted.
Every now and then we fall apart
The best scenario for Behnam would be for Goldsmith Romero, Johnson and their replacements on the CFTC to be confirmed as a single package. That way, the new commissioners would be able to take over immediately and business could continue with a revitalised Democratic majority.
Yet it is by no means certain that the departing commissioners will be swiftly confirmed in their new roles. If their nominations are presented at a July hearing of the US Senate, proceedings would need to move quickly for them to be confirmed before the Democratic-controlled upper house goes into recess the following month.
Christy Goldsmith Romero
Goldsmith Romero’s nomination is likely to be a priority for the Senate, given the urgent need to find a new FDIC chair. The current chair, Martin Gruenberg, announced his resignation last month after an independent investigation found
The advent of a new, sophisticated method for banks to calculate their capital requirements for market risk should have been a dream opportunity for risk modellers. Instead, it threatens to turn into a nightmare of funding cuts, as growing numbers of banks choose to abandon internal models for regulatory capital altogether.
Now, the modellers whose jobs are jeopardised are calling for intervention from the people who triggered the stampede towards standardised approaches in the first place – the
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The US securities regulator has warned firms not to falsely advertise the use of artificial intelligence in their investment products, adding those that engage in ‘AI washing’ may face enforcement action.
“It is a nice thing to advertise to show investors that ‘hey, we are cutting-edge’, but if the firm is not actually using it, it can attract the attention of enforcement,” said Maurya Keating, associate regional director for the investment adviser and investment company examination programme at
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Hong Kong derivatives market participants looking to implement new trade reporting rules are facing a significant compliance burden, as local regulators have requested more data than some other major jurisdictions.
“In some cases, it seems that regulators have just asked for more detail for particular fields which market participants may not think necessary,” says I-Ping Soong, a partner at law firm Linklaters in Hong Kong.
The Hong Kong Monetary Authority and Securities and Futures Commission
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It never rains, but it pours. Just as banks in the European Union are preparing for a new test of the interest rate risk embedded in their banking books, the Basel Committee on Banking Supervision is proposing an updated global standard to set parameters for testing the same risk.
Absent from the discussion are any estimates of the impact the Basel Committee’s proposed changes to global shock sizes will have on the test outcomes.
Risk.net has attempted to fill the void by using the prudential
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The loss of portfolio diversification benefits under new trading book capital rules will be a significant driver of increased market risk capital requirements, say the authors of research into the proposed framework. This could be contributing to banks’ reluctance to use internal models to calculate the new capital requirements.
“What we reveal is that diversification, which is considered the only free lunch in capital markets, just goes away with this framework,” says Carlos Manuel Pinheiro
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Securities and Exchange Commission chairman Gary Gensler has added his voice to growing calls to unbundle client clearing and execution services for US Treasury securities.
New rules adopted by the SEC last December will require most US Treasury cash trades to be centrally cleared from the end of next year, with repos following suit in June 2026.
Currently, most buy-side firms rely on dealers to submit trades to the Fixed Income Clearing Corporation, which has a monopoly on US Treasury clearing
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