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September 14 , 2009

Understanding Risk Management and Compliance, What is different after Monday, August 19, 2013


Swiss effectiveness on the recovery and resolution of globally active banks!

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Understanding Risk Management and Compliance, What is different after Monday, May 13, 2013

Life is becoming more complex for risk managers. We must have a "forward-looking perspective", remember?We have all these new laws and regulations ...... but we also have rules, proposals and reports to consider.Have you ever discovered the common elements of the various initiatives, including the Volcker rule in the United…

The Swiss Financial Market Supervisory Authority (FINMA) has published a great position paper. We learn about their "single point of entry" ("SPE") approach (resolution led centrally by the home supervisory and resolution authority and focused on the top-level group company).
Creditors of the parent bank or top-level holding company bear a share of the losses, allowing the entire financial group to be recapitalised.

This recapitalisation must be sufficient to meet the needs of all group companies in Switzerland and abroad.

This buys time with regard to restructuring the affected banks so that they can return to viable operation.

The fall-back option is a break-up of the group which may include a sale of entities and business lines or a wind-down of the non-viable parts of the group while the systemically important functions are preserved.

The recent entry into force of comprehensive legislation to mitigate the "too big to fail" problem in Switzerland has been well-publicised.

The new law provides the legal basis for the measures FINMA may have to take in resolution proceedings.

This position paper also addresses a variety of issues faced in implementing this strategy in the national and international context.

FINMA and other regulatory authorities are currently working on resolution strategies and resolution plans for the Swiss G-SIBs. This position paper sets forth the actual status of these efforts.

Read more at Number 6 below.

Next, Jaime Caruana speaks about sovereign risk, and how to continue to turn a stone into bread.

"The Latin root of credit is credere, the infinitive form of credo.
John Maynard Keynes described credit in 1943 as the "miracle . . . of turning a stone into bread".

And credit can indeed do great things, whether extended to sovereigns or to the private sector.

Recently, however, there has been too much of a good thing, contributing to a signal increase in systemic risk.

As noted by the BIS Annual Report last June, the pool of top-rated sovereign debt within the OECD has diminished considerably over the past few years and it has also become more concentrated by issuer".

Also, "risk managers at banks and insurance companies are starting to attach non-zero probabilities of default to even the most creditworthy of sovereigns.

We used to live in a world where sovereign risk was so low that investors could behave as if that debt was risk-free.

The situation was a bit like air travel: we all know that the risks are not zero when we get on a plane but they are low enough for most of us behave as if they were truly minimal."

Read more at Number 1 below.

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