Banking

CREDIT RISK, COMPETITION AND CONSUMER BANKS

A recent Bank of England working paper highlights the link between banking market competition and financial system stability. Consistent with earlier work, it highlights that as competition increases, the banking system overall responds typically by moving to higher risk lending.  However, in addition, it describes how individual banks tend to converge with the most-risky becoming more secure as competition increases.

RegRadar: 4most bring you the latest news from the credit risk industry

Welcome to the first edition of RegRadar. With publication of Basel III reforms in December 2017, the ongoing EBA RWA harmonisation programme and both the BoE & the ECB consulting on the Definition of Default for credit risk, forward planning and timely implementation is key to understanding how reforms will impact capital and compliance costs of current and future business plans.

IFRS 9 Impairment Models - A regulatory cost or a business opportunity?

The financial services industry has recently undergone a major change due to the introduction of IFRS 9 impairment requirements. This has come generally at increased costs due to either the redirection of internal resource or engagement of third parties to develop compliant models.

Financial Regulation: 10 years from the crash, how are things different?

This March marks 10 years since the fire sale of Bear Stearns in 2008, a significant moment in the global financial crisis. This moment offers us an appropriate time to reflect and assess how the banking industry has changed in that time and learned from the mistakes of the past – and to consider what the future holds for the sector.

4most comments on Bank of England’s stress test results

On 28th November, the Bank of England published the results from its 2017 stress tests, which provided an assessment of the stability of UK’s banking system.

The headlines show that the major UK banks have all passed the stress tests and are deemed strong enough to keep lending in a scenario more severe than that of the 2008 global financial crisis, which is good news for the sector.

UK RESIDENTIAL MORTGAGE RISK WEIGHTS THE IMPACT OF CP29/16 ON THE RESIDENTIAL MORTGAGE MARKET

On the 31st October 2016 the consultation period closed on new proposals by the Prudential Regulatory Authority (PRA), which are highly likely to alter the internal ratings based (IRB) approach that deposit institutions (banks and building societies) with residential mortgage lending portfolios will need to adopt when calculating their risk-weighted assets (RWA). 

 

Bank of England announcement of latest stress tests – Thoughts from 4most’s Chris Warhurst

Yesterday the Bank of England kicked off the 2017 stress testing season with publication of two economic scenarios.  While the second Annual Cyclical Scenario (ACS) looks at capital positions under stress and – given the economic assumptions are little different from last year, succeeds in its aim of making the exercise predictable – the first ever Bank Exploratory Scenario (BES) tests the banks’ ability to react to a world where the picture is one of compressed profit margins and competition for funding.

Banks cut budgets for maths and models as rules change

The FT covered a piece on a regulatory crackdown that it claims removes the key incentive for measuring risk – view the full article here https://next.ft.com/content/672e8d6a-1d63-11e6-b286-cddde55ca122  Here is our response - this certainly covers the impact for investment banks as rather than retail.  What BCBS have announced is that they are potentially withdrawing IRB treatments for exposures against large corporates and other banks.

A Quiet Crisis?

While Brexit may be dominating the headlines at the moment, some experts believe that a debt of €360bn in bad loans within a fragmented Italian banking sector, could be the biggest threat of all. The suggestion is that even a “small crisis” could trigger a chain of events that could potentially threaten the stability of the European Union, credit ratings agency Moody’s is reported to have said.

Challenger banks – challenges ahead?

We’ve got quite used to hearing the misery and bad news associated with UK banks since the financial crisis, yet one of the positive sides to this debate has been the rise of the challenger banks. These secondary players have grown quickly, with several listing last year as the sector continues to attract both customer and investor interest. The challenger banks have also long been praised by some politicians as being responsible for injecting much-needed further competition into the UK banking sector.

Good regulation vs. rules with unintended consequences

Regulations that aim to increase understanding of risks for management, investors and the general public are effective, self-reinforcing and are likely to change emergent behaviour. Market wide stress testing initiatives have been particularly powerful in this regard – by requiring banks to consider explicitly the worst scenarios and publish the outcomes, the market has been driven to protect and plan for those events.