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"Profit is the reward for taking risk". Frank Wright, Economist 1921
"In the future we will seek to make judgements on the judgements of senior management and take actions if in our view those actions will lead to risks to our statutory objectives. This is a fundamental change. It is moving from regulation based only on observable facts to regulation based on judgements about the future." Hector Sants, Chief Executive FSA 2009
Displaying 1 to 30 of 55 results in total.
26th February 2013
This explains the role of the PRA in the regulatory regime. The approach is clear. Systemic stability and depositor’s protection is crucial. But this is not a zero failure regime. Boards should note the focus on the governance of risk.
11th January 2013
Removing the simplified ILAS BIPRU firm automatic scalar increase and other minor changes to BIPRU 12. Although a consultation paper this will provide some comfort to simplified firms. The relevant parts are:
18th December 2012
The following explains five board presentations that are available from Barbican Consulting. Use them for guidance. They are about Treasury, Markets and Governance and are for NEDs. Presentations can be tailored to fit your business and the risks you manage. References are available. More detail is below.
25th July 2012
The following explanation is about The Funding for Lending Scheme. It contains the main content of the The Bank of England's Explanatory Note of 13th July 2012 together with additional comments.
24th May 2012
During the financial crisis we learnt that banks of all sizes can and do fail. What's more disentangling the business in an orderly and timely fashion was made difficult by complexity. What was the conclusion? Having plans to deal with failure would help in a restructuring without creating undue systemic risk and taxpayer funded support. With this in mind the FSA produced consultation paper 11/16, feedback statement 12/1 and draft changes to the Financial Stability and Market Confidence Sourcebook.
7th February 2012
Should a long dated mortgage asset be priced off the long dated cost of money? Or should it be priced off a shorter rate reflecting the fact that firms finance by borrowing short term and rolling this over?
7th February 2012
The presentation for the discussion group held at Mutual One on 25/1/12 and 3/2/12.
17th January 2012
Summary: For banks and societies FTP is not an option it's mandatory. Pooled funding is insufficiently granular for the risks that are now apparent. For most firms some type of matched maturity method either using market yields, derived yields or retail funding costs provides the base cost of funding. This needs to be adjusted to include the additional costs you have identified, for example the buffer cost. Each product will have a different set of costs based on the risks that it creates and the costs associated with hedging those risks. Embedding FTP is as important as calculating it. It's an area that's open to regulatory challenge and you need the evidence to back you up. More...
14th October 2011
On several occasions I have been asked about Dear CEO letters. These letters normally focus on a theme where the regulator has found weaknesses in the way firms manage their business. A formal response is often required. How seriously should you take these letters and your response?
12th August 2011
Basel III is about tightening up the capital and liquidity requirements for financial institutions. Whilst regulators and politicians want to avoid further bails outs there is a danger that the new rules could add further disruption to the credit system. It therefore follows that the new legislation will take at least a decade to be applied and in the process it will be subject to alteration. To be clear bank regulation is very much in the "melting pot". For many firms Basel III will increase the costs of doing business. Banks that find ways to change what they do or the way they do it will use their capital more effectively (aka leverage). This quick guide considers tiers 1, 2 and 3, the credit value adjustment, the liquidity coverage ratio, the net stable funding ratio and the possible effect on firms.
4th August 2011
Put a bank that has difficulty in raising liquidity in a room with an insurance company that's looking for yield and what do you get?
26th May 2011
Presentation Treasury Audit Group 25th May 2011
29th April 2011
It's the 5th May 2011 and I've just received an email from the FSA reminding me that the Individual Liquidity Systems Assessment (ILSA) Finalised Guidance is now available. This may not mean much to you. That's unless you fall under the simplified liquidity regime in the UK. The FSA's guidance is about what they expect to see and the good news is it's a far better document than its predecessors. So what does the FSA expect?
16th March 2011
Basis risk - an update It's a salutary fact that the regulator has identified that firms that run relatively large basis risks are more prone to margin compression. That's because excessive basis risk reduces your control over the balance sheet and calls into question your risk management and governance. Ask a trader about basis risk and they will tell you it is to do with ineffective hedging. You may think of it as the risk between Libor and Bank rate. The fact is basis risk means different things to different people. So let's define it. In the following article basis risk is "the degree of control you have over the margins in your balance sheet". This may seem an unusual definition but all will become apparent.
9th March 2011
The FSA has issued guidance consultation on reverse stress testing (Reverse stress-testing surgeries - FAQ). Some firms will fear that because reverse stress testing is relatively new the regulatory process will involve trial and error. So how can you undertake reverse stress testing and have a good chance of doing it well first time round? Using the maxim of KISS here are 24 FAQ.
2nd February 2011
On 17th January 2011 the FSA released a "Dear CEO letter" on Asset & Liability Management. So what are the "good practices" that are recommended in order to make your ALM function more effective? Here are 20 of the main points.
20th January 2011
Just in case you missed it consultation paper 11/1 now extends the time simplified ILAS BIPRU firms have to reach their buffer requirement. The relevant points are below.
6th January 2011
The FSA's proposed Dear CEO letter (Review of implementation of systems and controls requirements in liquidity regime dated December 2010) tells you that if it's not in writing it doesn't exist.
24th December 2010
In the proposed "Dear CEO letter" on Senior Asset & Liability Management Committee Practices (November 2010) the FSA picks up on ALM. Why is the FSA addressing this topic?
27th November 2010
Presentation to The Local and Regional Building Societies Conference, Ettington Chase, 25th November 2010. The presentation is here. The content of the speech is in the previous article.
27th November 2010
Speech to The Local and Regional Building Societies Conference, Ettington Chase, 25th November 2010. This is about liquidity.
23rd November 2010
Is a two tier liquidity regime in place? At a conference in January 2010 I warned that firms on the simplified ILAS regime could find it worked against them. My premise was as follows.
19th November 2010
Letter 17th November 2010 to the FSA regarding Guidance consultation Individual Liquidity Systems Assessment (ILSA) - Simplified ILAS BIPRU Firms November 2010.
16th November 2010
On 9th November 2010 the FSA issued proposed guidance on Individual Liquidity Systems Assessment (ILSA) Submission Information. It is a revised version of a document released earlier this year and attempts to clarify what's required. If you are putting together your ILSA the following may help:
15th November 2010
Dealers are human and they do make mistakes. These can come to light quickly or later during the confirmation process. Classic errors include rates, amounts, maturities and even what has been bought or sold.
5th September 2010
Now we are examining the entrails of the crisis one potential outcome is to break up the largest banks. The Commission on Banking will take evidence and decide whether this is a "good thing". No doubt concerted lobbying will occur. This makes the veiled threats to move "offshore" by some of the largest UK banks puzzling. Bank CEOs clearly aren't comfortable with the prospect of separating investment and retail banking apparently one can't work without the other. But if investment banking is so profitable why can't it do without the stolid retail business? It's straight forward. Investment banking gets two huge benefits from being wrapped up with retail banking. Let's see why.
3rd September 2010
This DP raises questions about the capital charge for trading books. Look more closely and you will find that the regulation of investment banking by the FSA is ineffective. Furthermore there is no reason to think that in the future it will improve. Investment banks will continue to run risks that periodically threaten their solvency. Their current interconnection with the retail deposit business means government support is guaranteed. A pragmatic solution would be to disentangle investment banking from the retail business. This free market approach is much favoured by investment bankers for other industries. Good business flourishes and bad ones die without placing a burden on the taxpayer. Now let's see why regulation won't protect us.
20th August 2010
What is reverse stress testing? It is the process of uncovering events that, should they occur, have the potential to make your business unviable. Such events can cover credit, market and liquidity risk. It's important to remember that business failure occurs before you run out of capital. It's when counterparties are unwilling to deal with you.
30th July 2010
Building societies are expected to have an up to date liquidity policy statement. This will need board approval. What should your liquidity policy contain? NEDs may find this guide helpful.
30th July 2010
Building societies are expected to have an up to date funding policy statement. This will need board approval. What should your funding policy contain? NEDs may find this guide helpful.