15

A simple correlation/beta analysis of the Banks-relative-to-market versus interest rates or bond yields will tell you that the effect is real enough, whether in Europe, the US, or Japan... Likewise, a simple multiple regression of bank equity to the equity market and to swap rates will also suggest that the rates beta is almost as significant, sometimes more ...


13

Here's a few. The categories are not mutually exclusive (e.g. since most investment advisors are obviously affected by tax and short-selling). Investment advisors Investment Advisers Act of 1940 Investment Company Act of 1940 SIPA of 1970 ERISA of 1974 JOBS Act of 2012 Europe Criminal Justice Act 1993 Financial Services Act 1986 Financial Services Act ...


11

Let's assume T=1 and let S be a geometric gaussian process with zero drift, i.e. $\ln(S_1/S_0)$ is normally distributed with mean $-1/2\times\mathrm{VEV}^2$ and volatility VEV. Then $$\ln(\mathrm{VaR}/S_0) = -1/2\mathrm{VEV}^2 - \mathrm{VEV} \times 1.96$$ with the VAR at $0.975$ quantile. This is a quadratic equation in VEV, with solutions $$\mathrm{VEV}...


5

Simplified: Banks usually live of the margin between what interest people pay fro credit vs. what interest people get for leaving their money with the bank. The higher the difference between the two, the more money is left for the bank. Before the last crisis banks increased this margin by high risk investments, which promised higher interest rates. Several ...


3

I believe that Basel Accords are not directly imposed on banks. Instead they are global recommendations. But in practice, all national financial regulators (e.g. FCA in UK) adopt Basel guidelines as minimum standards. Regulation does change across borders since national regulators can impose stricter or different rules to Basel. Also areas that are not ...


3

"1) Whether the shocks to Vol points are in % or bps. For example, for Australia bump to 1M vol is 16.2, so is this 16.2% of original Vol or it is a bump of 16.2 basis points to the original vol?" The shocks are in percentage points: for example if Australian 1M vol is 21.0%, the CCAR shocked 1M vol will be 21.0% + 16.2% = 37.2%. "2) This is to just ...


3

Sort of. (But I don't really like the way you put it). The purpose of capital adequacy regulations is to protect the depositors (and senior creditors). The capital is a kind of "cushion" that protects the creditors if assets go bad. The purpose of provision regulation is to make sure that the capital figures are accurate: as soon as losses are predicted ...


3

Please look at the 16 December 2010 publication of the Basel III regulatory frameworks for capital and liquidity and the 13 January 2011 press release on the loss absorbency of capital at the point of non-viability and related FAQs "Basel III definition of capital - Frequently asked questions" like bcbs 211.


3

To answer this question it might make sense to mention the VaR part and VEV part separately. VaR example using a parametric approach to VaR: assuming an investment of $V_0 = 10,000 $ into the financial asset and its daily log return following a normal distribution such that $r_t \backsim N(\mu, \sigma^2)$ with mean $\mu=0.02$ and standard deviation $\sigma =...


2

The formulae are on p17 of the document attached to the link you included. http://www.bis.org/bcbs/publ/d352.pdf It's just the profit or loss due to a specified shock in the underlying, which is not explained by the local delta of the position.


2

The bank in china has to have an account at an intermediary bank, and order a transfer from that account to the account of the US bank. Therefore the chinese bank needs to have the dollars.


2

No, 9th character is computed using deterministic algorithm described here: http://en.wikipedia.org/wiki/CUSIP#Check_digit_pseudocode.


2

The problem is not the sum $L + L_1$ but the question whether your $L_1$ is really a good model for whatever you might be missing in $L$. I personally (and maybe also some regulators) would regard losses always equal to 10K and completely independent from everything else not to be a good model for the low frequency high severity events typically missing from ...


2

Yes of course. They pay billions in interest to the central bank (ECB) and that consumes most of the profit they make on lending it out. European banks in particular are struggling to turn profitable.


1

The ECB can get you Eurosystem-wide aggregates, but remember that these are just reported by the ECB by the national central banks, who actually regulate the banks. The rules and reporting standards are Europe-wide; but this is nationally operated. And the precise figures for every individual bank are commercially-sensitive data. I'm not sure they are a ...


1

Merton model has been highly criticized in academic literature for its accuracy, though it provides good ranking of credit risk, it fails to quantify it. I'd say use machine learning or better yet deep learning. I used a recurrent neural network with time series inputs like amount due and changing monthly income among many more. It provided a good estimate ...


1

Taken from my experience as a trader I would suggest there are two parameters that comprise OperationalRisk: 1) A distribution of the size of losses due to the event, 2) A distribution of the frequency of events. I suspect a Poission distribution is fine to use to predict the frequency. Empirically this would tally with my experience. Secondly, with regard ...


1

Not a complete answer put perhaps partial help. What alternatives do we have for pillar 2? Hard to say. There doesn't seem to be any specific alternatives, apart adjusting your old procedures to whatever the institutions you are working with require. 2: Does it have to be a loss distribution approach (LDA) or could it be something between LDA and a ...


1

Having worked in a bank and often closely to senior managers, I have never heard anyone talking about a balance sheet target. Every dept has its revenue and cost targets.... Would be interesting to see what others have to say.


1

Yes, they definitely do. Most public companies - and that includes most banks - will have quarterly goals for revenue, profits, dividends, retained earnings and so on. So, while they usually won't set a specific target for assets (I'm guessing that's what you mean by balance sheet), you can sure find this target balance sheet by doing the math with the other ...


1

Actually, it is not very clear the legislation. However, from some slides that EIOPA used in a conference I tried to build back their computation and what I found is that: 1) you simulate 10k with lenght T, so you have a matrix 10k x T 2) you sum over the Ts so you get a vector 10k x 1 3) you have to go in the risk neutral world so from every element ...


1

Good lord - sovereign debt crisis anyone? 2010? Sorry it's a hybrid like any bond, not just corporates bonds, that way of looking at the world is as aged as thinking that banks can always fund at LIBOR, it is emphatically BOTH a credit derivative and an interest rate derivative. To ignore credit risk on a european government bond and to use use words such as ...


1

There is no doubt that it is an interest rate derivative. A credit derivative will have specific credit events in its term sheet such as bankruptcy, failure to pay, obligation acceleration, repudiation, restructuring etc ... that will cause the contract to trigger. There is no such event in a bond futures contract term sheet. It is true that the sovereign ...


1

It depends on the issuer: if it's a corporate then this would be considered a credit derivative, if it's a highly rated sovereign it would be an interest-rate derivative. As far as I am aware there are no futures currently traded on corporate bonds.


1

For large currency transactions, the big banks go through an intermediary called CLS. Both sides to a transaction transfer funds (in form of central bank deposits) to the CLS group. Then simultaneously these are transferred to the respective parties. Or if one side fails to deliver CLS returns the funds of the other party. See http://en.wikipedia.org/w/...


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