DOCSLIB.ORG

UBS Pillar 3 Report As of 30 September 2019

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text

Load more

30 September 2019 Pillar 3 report UBS Group and significant regulated subsidiaries and sub-groups Table of contents Contacts Switchboards Office of the Group Company For all general inquiries Secretary www.ubs.com/contact The Group Company Secretary receives inquiries regarding Introduction and basis for preparation Zurich +41-44-234 1111 compensation and related issues London +44- 207-567 8000 addressed to members of the Board New York +1-212-821 3000 of Directors. UBS Group Hong Kong +852-2971 8888 Singapore +65-6495 8000 UBS Group AG, Office of the 4 Section 1 Key metrics Group Company Secretary 6 Section 2 Risk-weighted assets Investor Relations P.O. Box, CH-8098 Zurich, UBS’s Investor Relations team Switzerland 10 Section 3 Going and gone concern requirements supports institutional, professional and eligible capital and retail investors from [email protected] 11 Section 4 Leverage ratio our offices in Zurich, London, New York and Krakow. +41-44-235 6652 14 Section 5 Liquidity coverage ratio UBS Group AG, Investor Relations Shareholder Services P.O. Box, CH-8098 Zurich, UBS’s Shareholder Services team, Switzerland a unit of the Group Company Secretary Office, is responsible Significant regulated subsidiaries and sub-groups www.ubs.com/investors for the registration of UBS Group AG registered shares. 18 Section 1 Introduction Zurich +41-44-234 4100 18 Section 2 UBS AG standalone New York +1-212-882 5734 UBS Group AG, Shareholder Services 22 Section 3 UBS Switzerland AG standalone P.O. Box, CH-8098 Zurich, Media Relations Switzerland 28 Section 4 UBS Europe SE consolidated UBS’s Media Relations team supports 29 Section 5 UBS Americas Holding LLC consolidated global media and journalists [email protected] from our offices in Zurich, London, New York and Hong Kong. +41-44-235 6652 www.ubs.com/media US Transfer Agent For global registered share-related Zurich +41-44-234 8500 inquiries in the US. [email protected] Computershare Trust Company NA London +44-20-7567 4714 P.O. Box 505000 [email protected] Louisville, KY 40233-5000, USA New York +1-212-882 5858 Shareholder online inquiries: [email protected] www-us.computershare.com/ investor/Contact Hong Kong +852-2971 8200 [email protected] Shareholder website: www.computershare.com/investor Calls from the US +1-866-305-9566 Calls from outside the US +1-781-575-2623 TDD for hearing impaired +1-800-231-5469 TDD for foreign shareholders +1-201-680-6610 Imprint Publisher: UBS Group AG, Zurich, Switzerland | www.ubs.com Language: English © UBS 2019. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved. Introduction and basis for preparation Introduction and basis for preparation Introduction and basis for preparation Scope and location of Basel III Pillar 3 disclosures Significant BCBS and FINMA capital adequacy, liquidity and funding, and related disclosure requirements The Basel Committee on Banking Supervision (BCBS) Basel III capital adequacy framework consists of three complementary This Pillar 3 report has been prepared in accordance with FINMA pillars. Pillar 1 provides a framework for measuring minimum Pillar 3 disclosure requirements (FINMA Circular 2016/1, capital requirements for the credit, market, operational and non- “Disclosure – banks”) as revised on 16 July 2018, the underlying counterparty-related risks faced by banks. Pillar 2 addresses the BCBS guidance “Revised Pillar 3 disclosure requirements” issued principles of the supervisory review process, emphasizing the in January 2015, the “Frequently asked questions on the revised need for a qualitative approach to supervising banks. Pillar 3 Pillar 3 disclosure requirements” issued in August 2016, the requires banks to publish a range of disclosures, mainly covering “Pillar 3 disclosure requirements – consolidated and enhanced risk, capital, leverage, liquidity and remuneration. framework” issued in March 2017 and the subsequent This report provides Pillar 3 disclosures for UBS Group and “Technical Amendment – Pillar 3 disclosure requirements – prudential key figures and regulatory information for UBS AG regulatory treatment of accounting provisions” issued in August standalone, UBS Switzerland AG standalone, UBS Europe SE 2018. consolidated and UBS Americas Holding LLC consolidated in the respective sections under “Significant regulated subsidiaries and Frequency and comparability of Pillar 3 disclosures sub-groups.” As UBS is considered a systemically relevant bank (SRB) under FINMA has specified the reporting frequency for each disclosure, Swiss banking law, UBS Group AG and UBS AG are required to as outlined in the table on pages 5 and 6 of our 31 December comply with regulations based on the Basel III framework as 2018 Pillar 3 report available under “Pillar 3 disclosures” at applicable to Swiss SRBs on a consolidated basis. Capital and www.ubs.com/investors. other regulatory information as of 30 September 2019 for UBS In line with the FINMA-specified disclosure frequency and Group AG consolidated is provided in the “Capital requirements for disclosure with regard to comparative periods, management” section of our third quarter 2019 report and for we provide quantitative comparative information as of 30 June UBS AG consolidated in the “Capital management” section of 2019 for disclosures required on a quarterly basis. Where the UBS AG third quarter 2019 report available under “Quarterly specifically required by FINMA and / or BCBS, we disclose reporting” at www.ubs.com/investors. comparative information for additional reporting dates. Local regulators may also require the publication of Pillar 3 information at a subsidiary or sub-group level. Where applicable, these local disclosures are provided under “Holding company and significant regulated subsidiaries and sub-groups” at www.ubs.com/investors. 2 UBS Group UBS Group Section 1 Key metrics Key metrics of the third quarter of 2019 The TLAC available as of 30 September 2019 included CET1 capital, additional tier 1 and tier 2 capital instruments eligible The KM1 and KM2 tables below are based on Basel Committee under the TLAC framework, and non-regulatory capital elements on Banking Supervision (BCBS) Basel III phase-in rules. The KM2 of TLAC. Under the Swiss systemically relevant bank (SRB) table includes a reference to the total loss-absorbing capacity framework, including transitional arrangements, TLAC excludes (TLAC) term sheet, published by the Financial Stability Board 45% of the gross unrealized gains on debt instruments (FSB). The website of the FSB provides this term sheet, at measured at fair value through other comprehensive income for www.fsb.org/2015/11/total-loss-absorbing-capacity-tlac- accounting purposes, which for regulatory capital purposes is principles-and-term-sheet. measured at the lower of cost or market value. This amount was During the third quarter of 2019, our common equity tier 1 negligible as of 30 September 2019, but is included as available (CET1) capital decreased by USD 0.3 billion to USD 34.7 billion, TLAC in the KM2 table below. mainly as a result of accruals for capital returns to shareholders, Risk-weighted assets (RWA) increased by USD 2.5 billion to share repurchases under our share repurchase program, foreign USD 264.6 billion, mainly due to an increase in credit risk RWA, currency translation effects, current tax expense and increases in partly offset by a decrease in market risk RWA. Leverage ratio pension liabilities of non-Swiss pension plans, partly offset by exposure decreased by USD 9 billion during the quarter, operating profit before tax. Our tier 1 capital increased by predominantly driven by on-balance sheet exposures. High- USD 0.7 billion to USD 50.7 billion, primarily reflecting two quality liquid assets decreased by USD 8.3 billion, primarily separate issuances of high-trigger loss-absorbing AT1 driven by a reduction of cash at central banks reflecting higher instruments of AUD 700 million and SGD 750 million, average funding consumption by the business divisions and respectively. reductions in the level of issued debt. Refer to “UBS shares” in the “Capital management” section of our third quarter 2019 report for more information about the share repurchase program 4 KM1: Key metrics USD million, except where indicated 30.9.19 30.6.19 31.3.19 31.12.18 30.9.183 Available capital (amounts)1 1 Common equity tier 1 (CET1) 34,673 34,948 34,658 34,119 34,816 1a Fully loaded ECL accounting model 34,635 34,904 34,613 34,071 34,816 2 Tier 1 50,702 49,993 49,436 46,279 45,972 2a Fully loaded ECL accounting model Tier 1 50,664 49,949 49,391 46,231 45,972 3 Total capital 56,396 56,345 56,148 52,981 52,637 3a Fully loaded ECL accounting model total capital 56,358 56,302 56,103 52,933 52,637 Risk-weighted assets (amounts) 4 Total risk-weighted assets (RWA) 264,626 262,135 267,556 263,747 257,041 4a Minimum capital requirement2 21,170 20,971 21,404 21,100 20,563 4b Total risk-weighted assets (pre-floor) 264,626 262,135 267,556 263,747 257,041 Risk-based capital ratios as a percentage of RWA1 5 Common equity tier 1 ratio (%) 13.10 13.33 12.95 12.94 13.55 5a Fully loaded ECL accounting model Common equity tier 1 (%) 13.09 13.32 12.94 12.92 13.55 6 Tier 1 ratio (%) 19.16 19.07 18.48 17.55 17.89 6a Fully loaded ECL accounting model Tier 1 ratio (%) 19.15 19.05 18.46 17.53 17.89 7 Total capital ratio (%) 21.31 21.49 20.99 20.09 20.48 7a Fully loaded ECL accounting model total capital ratio (%) 21.30 21.48 20.97 20.07
Recommended publications
  • Basel III: Post-Crisis Reforms

    Basel III: Post-Crisis Reforms

    Basel III: Post-Crisis Reforms Implementation Timeline Focus: Capital Definitions, Capital Focus: Capital Requirements Buffers and Liquidity Requirements Basel lll 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 1 January 2022 Full implementation of: 1. Revised standardised approach for credit risk; 2. Revised IRB framework; 1 January 3. Revised CVA framework; 1 January 1 January 1 January 1 January 1 January 2018 4. Revised operational risk framework; 2027 5. Revised market risk framework (Fundamental Review of 2023 2024 2025 2026 Full implementation of Leverage Trading Book); and Output 6. Leverage Ratio (revised exposure definition). Output Output Output Output Ratio (Existing exposure floor: Transitional implementation floor: 55% floor: 60% floor: 65% floor: 70% definition) Output floor: 50% 72.5% Capital Ratios 0% - 2.5% 0% - 2.5% Countercyclical 0% - 2.5% 2.5% Buffer 2.5% Conservation 2.5% Buffer 8% 6% Minimum Capital 4.5% Requirement Core Equity Tier 1 (CET 1) Tier 1 (T1) Total Capital (Tier 1 + Tier 2) Standardised Approach for Credit Risk New Categories of Revisions to the Existing Standardised Approach Exposures • Exposures to Banks • Exposure to Covered Bonds Bank exposures will be risk-weighted based on either the External Credit Risk Assessment Approach (ECRA) or Standardised Credit Risk Rated covered bonds will be risk Assessment Approach (SCRA). Banks are to apply ECRA where regulators do allow the use of external ratings for regulatory purposes and weighted based on issue SCRA for regulators that don’t. specific rating while risk weights for unrated covered bonds will • Exposures to Multilateral Development Banks (MDBs) be inferred from the issuer’s For exposures that do not fulfil the eligibility criteria, risk weights are to be determined by either SCRA or ECRA.
  • Impact of Basel I, Basel II, and Basel III on Letters of Credit and Trade Finance

    Impact of Basel I, Basel II, and Basel III on Letters of Credit and Trade Finance

    Impact of Basel I, Basel II, and Basel III on Letters of Credit and Trade Finance Requirement Basel I Basel II Basel III 2013 2015 2019 Common Equity 2.0% of 3.5% of RWA 4.5% of RWA 4.5% of RWA RWA Tier 1 Capital 4.0% of 4.0% of 4.5% of RWA 6.0% of RWA 6.0% of RWA RWA RWA Total Capital 8.0% of 8.0% of 8.0% of RWA 8.0% of RWA 8.0% of RWA RWA RWA Capital Conversion -0- -0- +2.5% of RWA Buffer Leverage Ratio Observation Observation (4% of direct assets) (based on Total Capital) 3% of total direct and contingent assets Counter Cyclical Buffer +Up to 2.5% of RWA Liquidity Coverage Observation 30 days 30 days Net Stable Funding Observation Observation 1 year Additional Loss +1% to 2.5% of RWA Absorbency Color Code Key (US Applicability): (Applies only in the US) In the US, applies only to “Large, Internationally-Active Banks” Not yet implemented in the US Depending on the bank and the point in the economic cycle, under Basel III, the total capital requirement for a bank in 2019 may be as much as 15.5% of Risk-Weighted Assets (“RWA”), compared with 8% under Basel I and Basel II. The amount of Risk-Weighted Assets (“RWA”) is computed by multiplying the amount of each asset and contingent asset by a risk weighting and a Credit Conversion Factor (“CCF”) Under Basel I, risk weightings are set: 0% for sovereign obligors, 20% for banks where tenors ≤ one year, 50% for municipalities and residential mortgages, 100% for all corporate obligors Under Basel II, risk weightings are based on internal or external (rating agency) risk ratings with no special distinction for banks; capital requirements for exposures to banks are increased by as much as 650% (from 20% to as much as 150%) The Credit Conversion Factor for Letters of Credit varies under Basel I vs.
  • DIVIDEND GROWERS DOMINATE OTHER DIVIDEND CATEGORIES June 7, 2021

    DIVIDEND GROWERS DOMINATE OTHER DIVIDEND CATEGORIES June 7, 2021

    DIVIDEND GROWERS DOMINATE OTHER DIVIDEND CATEGORIES June 7, 2021 Dividend growers outperformed all dividend categories for the past 48 1/4 years with less risk. This is our conclusion based on data provided by Ned Davis Research. The research focuses on dividend payers, non-dividend payers, and dividend cutters. Note that the pattern of dividend growers outperformance holds for both the entire period of analysis and each sub-period (First Table). It also holds that growers experienced lower volatility for both the entire period and each sub-period (Second Table). In this note, we address why we think this phenomenon exists and what it could mean to investors. RETURN BY DIVIDEND CATEGORY (ANNUAL) Period Increased Paid No Change Not Paid Cut 1973-79 5.9% 5.3% 4.9% 1.7% -3.9% 1980-89 17.8% 16.3% 12.8% 8.6% 8.4% 1990-99 13.2% 12.0% 9.4% 10.3% 6.3% 2000-09 3.5% 2.4% 0.3% -6.5% -12.2% 2010-19 12.9% 11.6% 7.9% 9.3% -1.1% 1973-April 21 10.6% 9.5% 7.0% 4.8% -0.8% VOLATILITY BY DIVIDEND CATEGORY (ANNUAL) Period Increased Paid No Change Not Paid Cut 1973-79 19.2% 19.5% 20.7% 25.5% 23.7% 1980-89 17.3% 17.6% 18.9% 21.2% 21.5% 1990-99 13.9% 13.9% 14.4% 18.5% 17.1% 2000-09 15.9% 18.1% 20.1% 27.2% 31.8% 2010-19 12.7% 13.4% 15.8% 16.1% 21.9% 1973-April 21 16.1% 16.9% 18.5% 22.2% 25.1% Source: Ned Davis Research; WCA WHY DIVIDEND GROWERS GENERATE SUPERIOR RISK-ADJUSTED RETURNS We believe there are five main reasons why investors should prefer dividend growers based on years of research and study.
  • Use of Leverage, Short Sales, and Options by Mutual Funds

    Use of Leverage, Short Sales, and Options by Mutual Funds

    Use of Leverage, Short Sales, and Options by Mutual Funds Paul Calluzzo, Fabio Moneta, and Selim Topaloglu* This draft: March 2017 Abstract We study the use of leverage, short sales, and options by equity mutual funds. Consistent with agency-induced motives for the use of these complex instruments, we find that they are often used by poorly monitored funds, and are associated with poor outcomes for investors such as lower performance, higher idiosyncratic risk, more negative skewness, greater kurtosis, and higher fees. Consistent with moral hazard, we also find that mutual funds that use these instruments hold riskier equity positions. Mutual funds attempt to use complex instruments to reduce the risk of their portfolios but in an imperfect and costly way. JEL Classification: G11, G23 Keywords: mutual funds, leverage, short sales, options, complex instruments, fees, performance, risk * Smith School of Business, Queen's University, 143 Union Street, Kingston, Ontario K7L 3N6, Canada. Emails: [email protected], [email protected], and [email protected]. We thank George Aragon, Laurent Barras and seminar participants at the 2nd Smith-Ivey Finance Workshop and the 2016 Telfer Annual Conference on Accounting and Finance for their helpful comments. Electronic copy available at: https://ssrn.com/abstract=2938146 I can resist anything except temptation. -Oscar Wilde 1. Introduction Over the past fifteen years there has been a rise in the complexity of mutual funds as more funds are given the authority to use leverage, short sales, and options. Over this period 42.5% of domestic equity funds have reported using at least one of these instruments.
  • Leverage Networks and Market Contagion

    Leverage Networks and Market Contagion

    Leverage Networks and Market Contagion Jiangze Bian, Zhi Da, Dong Lou, Hao Zhou∗ First Draft: June 2016 This Draft: March 2019 ∗Bian: University of International Business and Economics, e-mail: [email protected]. Da: University of Notre Dame, e-mail: [email protected]. Lou: London School of Economics and CEPR, e-mail: [email protected]. Zhou: PBC School of Finance, Tsinghua University, e-mail: [email protected]. We are grateful to Matthew Baron (discussant), Markus Brunnermeier (discussant), Adrian Buss (discus- sant), Agostino Capponi, Vasco Carvalho, Tuugi Chuluun (discussant), Paul Geertsema (discussant), Denis Gromb (discussant), Harald Hau, Zhiguo He (discussant), Harrison Hong, Jennifer Huang (discussant), Wenxi Jiang (discussant), Bige Kahraman (discussant), Ralph Koijen, Guangchuan Li, Fang Liang (discus- sant), Shu Lin (discussant), Xiaomeng Lu (discussant), Ian Martin, Per Mykland, Stijn Van Nieuwerburgh, Carlos Ramirez, L´aszl´oS´andor(discussant), Andriy Shkilko (discussant), Elvira Sojli, and seminar partic- ipants at Georgetown University, Georgia Institute of Technology, London School of Economics, Michigan State University, Rice University, Southern Methodist University, Stockholm School of Economics, Texas Christian University, Tsinghua University, UIBE, University of Hawaii, University of Houston, University of Miami, University of South Florida, University of Zurich, Vienna Graduate School of Finance, Washington University in St. Louis, 2016 China Financial Research Conference, 2016 Conference on the Econometrics
  • Basel III: a Global Regulatory Framework for More Resilient Banks and Banking Systems

    Basel III: a Global Regulatory Framework for More Resilient Banks and Banking Systems

    This standard has been integrated into the consolidated Basel Framework: https://www.bis.org/basel_framework/ Basel Committee on Banking Supervision Basel III: A global regulatory framework for more resilient banks and banking systems December 2010 (rev June 2011) Copies of publications are available from: Bank for International Settlements Communications CH-4002 Basel, Switzerland E-mail: [email protected] Fax: +41 61 280 9100 and +41 61 280 8100 © Bank for International Settlements 2010. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated. ISBN print: 92-9131-859-0 ISBN web: 92-9197-859-0 Contents Contents ...................................................................................................................................3 Introduction...............................................................................................................................1 A. Strengthening the global capital framework ....................................................................2 1. Raising the quality, consistency and transparency of the capital base ..................2 2. Enhancing risk coverage........................................................................................3 3. Supplementing the risk-based capital requirement with a leverage ratio...............4 4. Reducing procyclicality and promoting countercyclical buffers ..............................5 Cyclicality of the minimum requirement .................................................................5 Forward
  • Leverage and the Beta Anomaly

    Leverage and the Beta Anomaly

    Downloaded from https://doi.org/10.1017/S0022109019000322 JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS COPYRIGHT 2019, MICHAEL G. FOSTER SCHOOL OF BUSINESS, UNIVERSITY OF WASHINGTON, SEATTLE, WA 98195 doi:10.1017/S0022109019000322 https://www.cambridge.org/core Leverage and the Beta Anomaly Malcolm Baker, Mathias F. Hoeyer, and Jeffrey Wurgler * . IP address: 199.94.10.45 Abstract , on 13 Dec 2019 at 20:01:41 The well-known weak empirical relationship between beta risk and the cost of equity (the beta anomaly) generates a simple tradeoff theory: As firms lever up, the overall cost of cap- ital falls as leverage increases equity beta, but as debt becomes riskier the marginal benefit of increasing equity beta declines. As a simple theoretical framework predicts, we find that leverage is inversely related to asset beta, including upside asset beta, which is hard to ex- plain by the traditional leverage tradeoff with financial distress that emphasizes downside risk. The results are robust to a variety of specification choices and control variables. , subject to the Cambridge Core terms of use, available at I. Introduction Millions of students have been taught corporate finance under the assump- tion of the capital asset pricing model (CAPM) and integrated equity and debt markets. Yet, it is well known that the link between textbook measures of risk and realized returns in the stock market is weak, or even backward. For example, a dollar invested in a low beta portfolio of U.S. stocks in 1968 grows to $70.50 by 2011, while a dollar in a high beta portfolio grows to just $7.61 (see Baker, Bradley, and Taliaferro (2014)).
  • Chapter 13 Lecture: Leverage

    Chapter 13 Lecture: Leverage

    CHAPTERCHAPTER 13:13: LEVERAGE.LEVERAGE. (The use of debt) 1 The analogy of physical leverage & financial leverage... A Physical Lever... 500 lbs 2 feet 5 feet 200 lbs LIFTS "Leverage Ratio" = 500/200 = 2.5 “Give me a place to stand, and I will move the earth.” - Archimedes (287-212 BC) 2 Financial Leverage... $4,000,000 EQUITY BUYS INVESTMENT $10,000,000 PROPERTY "Leverage Ratio" = $10,000,000 / $4,000,000 = 2.5 Equity = $4,000,000 Debt = $6,000,000 3 Terminology... “Leverage” “Debt Value”, “Loan Value” (L) (or “D”). “Equity Value” (E) “Underlying Asset Value” (V = E+L): "Leverage Ratio“ = LR = V / E = V / (V-L) = 1/(1-L/V) (Not the same as the “Loan/Value Ratio”: L / V,or “LTV” .) “Risk” The RISK that matters to investors is the risk in their total return, related to the standard deviation (or range or spread) in that return. 4 Leverage Ratio & Loan-to-Value Ratio 25 20 1 LR = 1−LTV 15 LR 10 5 0 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% LTV 5 Leverage Ratio & Loan-to-Value Ratio 100% 90% 80% 70% 1 60% LTV =1− LR 50% LTV 40% 30% 20% 10% 0% 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00 20.00 LR 6 Effect of Leverage on Risk & Return (Numerical Example)… Example Property & Scenario Characteristics: Current (t=0) values (known for certain): E0[CF1] = $800,000 V0 = $10,000,000 Possible Future Outcomes are risky (next year, t=1): "Pessimistic" scenario (1/2 chance): $11.2M CF1 = $700,000; V1 = $9,200,000.
  • Basel Ii/Iii Implementation Roadmap for the Eastern Caribbean Currency Union

    Basel Ii/Iii Implementation Roadmap for the Eastern Caribbean Currency Union

    BASEL II/III IMPLEMENTATION ROADMAP FOR THE EASTERN CARIBBEAN CURRENCY UNION Bank Supervision Department EASTERN CARIBBEAN CENTRAL BANK ST KITTS BASEL II/III IMPLEMENTATION ROADMAP FOR THE EASTERN CARIBBEAN CURRENCY UNION 1.0 PURPOSE This Roadmap provides an overview of the Eastern Caribbean Central Bank’s (ECCB/the Central Bank) Basel II/III implementation programme for the Eastern Caribbean Currency Union (ECCU). The document outlines the Central Bank’s approach towards implementation, the implementation options selected and key deliverables/activities. The Roadmap is intended to guide the expectations and actions of all stakeholders associated with the Basel II/III implementation process. 2.0 INTRODUCTION The ECCB is committed to implementing certain aspects of Basel II/III in the ECCU for computing the capital adequacy of institutions licenced under the Banking Act 2015 (the Act), in accordance with Sections 46 and 47 of the Act1. Towards this end, the ECCB established a dedicated team (Basel Implementation Group) for spearheading the implementation effort and a Basel II/III Working Committee comprising of representatives from the ECCB, ECCU Bankers Association and commercial banks, for collaborating with the banking industry on an ongoing basis. The Central Bank sought comments on some draft standards2 in 2018 and plans to continue to deepen its interaction with licensees via a number of consultations and training sessions. Basel II/III constitutes a more comprehensive measure of capital adequacy than the existing Basel I. Basel II/III seeks to align regulatory capital requirements more closely with the underlying risks that banks face. The framework requires banks to assess the riskiness of their assets with respect to credit, market and operational risks and seeks to ensure that banks’ minimum capital requirements better reflect inherent risks in their portfolios, risk management practices and accompanying disclosures to the public.
  • The Great Leverage 2.0? a Tale of Different Indicators of Corporate Leverage Falk Bräuning and J

    The Great Leverage 2.0? a Tale of Different Indicators of Corporate Leverage Falk Bräuning and J

    Research Department April 2, 2020 Current Policy Perspectives The Great Leverage 2.0? A Tale of Different Indicators of Corporate Leverage Falk Bräuning and J. Christina Wang Many policymakers have expressed concerns about the rise in nonfinancial corporate leverage and the risks this poses to financial stability, since (1) high leverage raises the odds of firms becoming a source of adverse shocks, and (2) high leverage amplifies the role of firms in propagating other adverse shocks. This policy brief examines alternative indicators of leverage, focusing especially on the somewhat disparate signals they send regarding the current state of indebtedness of nonfinancial corporate businesses. Even though the aggregate nonfinancial corporate debt-to-income ratio is at a historical high, these firms’ ability to service the debt, as measured by the interest coverage ratio, looks healthy. A simple model shows that this pattern can be consistent with firms’ optimal choice of leverage in response to an exogenous decline in interest rates. On the other hand, the model also reveals that the fall in the interest coverage ratio due to a given yield increase is magnified when interest rates are at low levels. The implication is that the elevated nonfinancial corporate debt-to-income ratio that has been present in recent years raises the downside risk of firms becoming unable to service their debt following any adverse shock, such as a decline in income or an increase in risk premia. 1. Introduction In recent years, US policymakers have repeatedly expressed concerns about the rising leverage of nonfinancial corporate businesses and the risks this poses to financial stability and the real economy.
  • 1 Solving the Present Crisis and Managing the Leverage Cycle John Geanakoplos We Are at the Acute Crisis Stage of a Leverage

    1 Solving the Present Crisis and Managing the Leverage Cycle John Geanakoplos We Are at the Acute Crisis Stage of a Leverage

    Solving the Present Crisis and Managing the Leverage Cycle John Geanakoplos1 We are at the acute crisis stage of a leverage cycle, a very big cycle. I write to propose a plan with concrete steps that the government could take to address the severe financial condition that we now find ourselves in. It is critical that any rescue plan be clear and transparent, implementable and not subject to fraud, and comprehensive enough to succeed and to convince the public it will succeed. The law already enacted by Congress was admittedly an emergency measure designed to staunch further immediate hemorrhaging. What to do next is the question; understanding how we got here will help us find the right set of answers. The leverage cycle is a recurring phenomenon in American financial history. Most recently, one ended in the derivatives crisis in 1994 that bankrupted Orange County, and another ended in the Emerging Markets-mortgage crisis of 1998 that bankrupted Long Term Capital. A proper understanding of the origins of the cycle shows the way to manage it and to deal with the final crisis stage. A critical aspect of the leverage cycle is that collateral margin rates change. Two years ago a home buyer could make a 5% downpayment on a house, and borrow the other 95%. Now he must put 25% down. Two years ago a mortgage security buyer could put 3% or 10% down, borrowing the rest. Now he must pay 100% in cash. All leverage cycles end with (1) bad news creating more uncertainty and disagreement, (2) sharply increasing collateral margin rates, and (3) losses and bankruptcies among the leveraged optimists.
  • Powerful XVA Analytics. It's in Our DNA

    Powerful XVA Analytics. It's in Our DNA

    Powerful XVA Analytics. It’s in Our DNA. Comprehensive XVA Management Built on the Best Analytics Numerix Oneview puts the industry’s most sophisticated analytics at the core of your XVA desk. This analytic DNA empowers central desks to confidently manage counterparty exposures, integrate XVAs into deal prices, and execute even the most complex deals at the right price. ONE BEST PRICE ACTIVE MANAGEMENT Fast and accurate pricing, Proactively manage desk XVA analysis, exposure analysis, positions, analyze XVA Greeks and cheapest to trade, and regulatory possible hedges, understand P&Ls, capital analysis on any OTC derivative ONEVIEW FOR review CSAs for pricing and risk impacts, trade, from vanilla to exotic CENTRAL XVA and manage collateral/margin. MANAGEMENT OF OTC DERIVATIVES PORTFOLIOS RISK MANAGEMENT CAPITAL OPTIMIZATION Accurately measure, manage Minimize capital charges and mitigate counterparty credit risk for Basel III and and market risk across your SA-CCR compliance OTC derivatives portfolios. Profitable Decisions Demand Powerful Insights. XVA desks need fast and accurate views into the profitability and risks of their derivative business. Oneview’s next-generation technology provides the edge they need to compete and win in their markets. Oneview’s intelligent front-to-risk capabilities are powered by the most comprehensive analytic library in OTC derivatives and structured products, which includes our gold-standard hybrid model and our robust Monte Carlo engine. Designed for the evolution of the capital markets, Oneview was built for complex calculations, is scalable and cloud-ready—empowering unparalleled accuracy, enabling real-time calculations and unleashing dynamic custom reporting and analysis capabilities. All the insights you need, readily available at your fingertips.