Risk and Regulation

Complaints about the draft European guidelines with regards to interest rate risk in banking book that did not define credit spread risk arose recently. Members state that they will not monitor the risk as required if proposals are not clarified. The EBA guidance on credit spread risk is not as clear as the Basel standards. The October 31 version of EBA guidelines proposed how banks should manage their interest rate risk in the banking book. This draft will also update guidelines on IRRBB with regards to changes by the Basel Committee published in April 2016. EBA did not clearly define credit spread risk and credit margin in its proposal. The Basel Committee defines CSRBB as any kind of asset or liability spread risk of credit-risky instruments that is not explained by IRRBB or jump-to default risk. CSRBB covers changes to the underlying credit quality could amplify the risk of increase or decreases in the price of bonds once market interest rates change. CSRBB is only defined as...

News: In August, the Globe and Mail reported that Canadian Depository for Securities Ltd. (subsidiary of TMX Group Inc.) was contemplating a ban on clearing cannabis stocks with U.S. exposure. Currently, only medical cannabis use is legal in Canada and recreational use will be legalized in July 2018. South of the border, both medical and recreational cannabis use are illegal under federal legislation. However, it is legal to consume cannabis in thirty-one states under their state law. TMX announced that there is no ban on clearing securities of cannabis companies with U.S. interest. Instead, TMX would focus on applying strict listing and compliance requirements. The Canadian Securities Exchange said that pot companies must disclose risks when they invest in U.S. "This is a positive development for CannaRoyalty and for any issuer with U.S. marijuana-related activities traded on the Canadian Securities Exchange ("CSE")," said Marc, Lustig, CannaRoyalty CEO....

Background: August 18th 2016, FSB published the Guiding Principles on the temporary funding needed to support the orderly resolution of a global systemically important bank, to assist authorities in their resolution planning work. This report provides additional guidance for the development of an implementable resolution funding plan and identifies a set of key funding strategy elements. Summary: Key funding strategy elements proposed by FSB: Strategy for maintaining liquidity in resolution i) Assess whether the overall strategy for ensuring adequate liquidity in resolution is feasible and consistent with overall resolution strategy. Firm capabilities to support monitoring, reporting and estimating funding needs in resolution ii) Capabilities to measure sources and positioning of liquidity and any impediments or actions taken to improve the firm's capabilities. iii) Capabilities to report liquidity information on a timely basis. iv) Capabilities to identify and rapi...

Background: FSB set out rules to require G-SIBs to have minimum capital in place in the event of resolution in 2011. However, the publishing of Key Attributes of Effective Resolution Regimes for Financial Institutions and  the FSB’s standard on Total Loss-absorbing Capacity did not address the issue regarding operational readiness with regard to executing a bail-in transaction. This newly published consultation paper proposes a set of principles to assist regulators to develop bail-in resolution strategies and make resolution operational for G-SIBs. Introduction: G-SIB resolution strategies are generally based on two distinct approaches: i) Open bank bail-in: may require the write-down and/or conversion into equity of the instruments and liabilities subject to bail-in under a shorter time frame. Recapitalizing the failed legal entity may simplify the process of issuing securities and obtaining regulatory approvals, as existing documentation could be used as a basis to ...