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Targeted Review of Internal Models: What to expect?

Targeted Review of Internal Models: What to expect?

Following the financial crisis of 2007-2009 doubts had emerged on the relevance of the internal models to calculate Risk-Weighted Assets (RWA). The minimum capital required to absorb losses corresponds to a percentage of the RWA. To calculate the RWA, different type of risks (credit risk, market risk and operational risk) are taken into account and each asset class has different risk weights associated with them. As we can see in the scheme below, to calculate these risk weights, banks have the choice between the internal models or the standardized models.

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The Rise of ETFs: A Bubble in the Making?

The Rise of ETFs: A Bubble in the Making?

In December, the S&P 500 plunged, briefly falling as much as 20% below its all-time high. The U.S. stock market falling to the cusp of a bear market didn’t slow ETF (Exchange Traded Funds) investors :  nearly $50 billion inflow into U.S.-listed ETFs in December, propelling 2018 into the record books as the year with the second-largest inflows ever ($315.4 billion for the whole of 2018).

Since the flash-crash in May 2010, specific measures related to ETF’s were put in place as  ETFs played a significant part in the fall, with 68% of more than 21,000 cancelled trades coming from ETF investors. These measures included trading limits designed to prevent sudden changes in securities’ prices.

So with the continued massive inflow into ETF’s, is there a bubble in the making? Our experts give their view on the subject

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Understanding Passive Currency Overlay

Understanding Passive Currency Overlay

The world of Foreign Exchange continues to evolve and expand rapidly, at least in terms of global daily average turnover[1]. This evolution is fundamentally due to:

  • The structure of the market: continued consolidation among the market players.

  • The composition of the market participants: currency overlay managers and traditional asset managers are joined by hedge funds, high-frequency traders and retail aggregators.

  • The new technologies: new electronic platforms and networks are used as well as new services and technologies such as STP and CLS which have added efficiency to the end-to-end trade flow while limiting the risks.

This is happening in the context of a recent financial crisis (2008) where changes and uncertainty have brought a mixed of good and bad news to investors including the opportunity to have a fresh look at the currency risk management policy: whereas some may opt for a more conservative approach, other investors may try to capture the newly emerged opportunities.

This document might be the very first step towards the challenging process of setting up a sensible currency risk management policy.

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