treasury - Blog - Global Risk Community2024-03-28T18:15:52Zhttps://globalriskcommunity.com/profiles/blogs/feed/tag/treasuryAn Interview with UBS: The Impact of COVID on Balance Sheet Structureshttps://globalriskcommunity.com/profiles/blogs/an-interview-with-ubs-the-impact-of-covid-on-balance-sheet-struct2021-09-29T20:21:56.000Z2021-09-29T20:21:56.000ZRia Kiayiahttps://globalriskcommunity.com/members/RiaKiayia<div><img src="https://storage.ning.com/topology/rest/1.0/file/get/9624910470?profile=RESIZE_400x&width=200"></div><div><div id="lp-pom-text-147" class="lp-element lp-pom-text nlh"><p class="lplh-42">An Interview with Erkka Pesonen, Director, ALM Risk Management and FTP, at UBS</p></div><div id="lp-pom-text-148" class="lp-element lp-pom-text nlh"><p>Ahead of the <a href="https://www.marcusevans.com/conferences/ftpmanagement?utm_source=media+partner&utm_medium=grc+blog+post&utm_campaign=CM488+-+grc" target="_blank">11th Annual Funds Transfer Pricing and Balance Sheet Management</a> Conference, we spoke with Erkka Pesonen, Director of ALM Risk Management and FTP at UBS. Erkka works in the Group Treasury ALM team, responsible for FTP setting and methodology and interest rate risk hedging. Prior to his current role Erkka has worked in Treasury cash trading and Treasury funding roles at UBS. He has over ten years of Treasury and Finance experience at UBS in Switzerland and the UK. Erkka has a BSc in Economics from the London School of Economics and he is FCA certified (CISI certification).</p><p><strong>How has the impact of Covid-19 affected balance sheet structures?</strong></p><p>The low rate and credit spread environment post Covid-19 turbulence has been beneficial for issuers. Group Treasuries across the board have printed farther out the curve to benefit from relative flat tenor extension cost. Companies seem to also have taken this opportunity to issue more than planned, as total issuance volumes are reaching record highs this year. Banks have seen deposit growth in ring-fenced entities where customers have been holding cash surpluses as a consequence of COVID related constraints.</p><p><strong>Do the challenges around balance sheet structure vary across different jurisdictions?</strong></p><p>Local regulators impose their interpretation of the Basel requirements and their expert local judgement to their jurisdictions which can create varying binding constraints within a Group. Such variations need to be layered into the internal pricing to accurately reflect the cost of liquidity, funding and capital – which can create a trade-off between technical complexity and pricing/signalling effectiveness.</p><p><strong>Has the product mix need to optimise RWA changed across the last couple of years?</strong></p><p>RWA optimisation is driving constant assessment of the return on capital across the industry – from Risk or Leverage driving the capital requirement, through to other optimisation initiatives and the product mix.</p><p><strong>What could be some future trends with balance sheet structure going forward?</strong></p><p>Main themes will likely remain around optimisation of Liquidity and Funding Metrics, LRD and RWA while navigating the low interest rate environment – and enabling FTP incentivisation mechanisms to account for them.</p><p><strong>What do you hope to gain by attending the Funds Transfer Pricing and Balance Sheet Management event?</strong></p><p>I found the presentations, discussions and the materials that were shared afterwards extremely valuable to take back with me and discuss with my colleagues. I gained new insights to Bank Treasuries’ thoughts on how to best approach regulatory requirements, balance sheet modelling and optimisation.</p><div id="lp-pom-text-189" class="lp-element lp-pom-text nlh"><p><strong>Erkka will be presenting during Day Two!</strong></p></div><div id="lp-pom-box-204" class="lp-element lp-pom-box"><h4><strong>Achieve optimal balance sheet structure in the era of COVID-19</strong></h4><ul><li>Build a balance sheet that takes into account different regulations, focus points and geographies</li><li>Product mix on the balance sheet to optimise RWA: Prioritise products with a low cost of capital </li><li>Examine what the balance sheet looks like on the liability side: Are deposits floored?</li></ul></div><p>For more information about the event, please visit <a href="https://bit.ly/3zUfFpE%C2%A0or">https://bit.ly/3zUfFpE or</a> contact:</p><p>Ria Kiayia, Digital Media and PR Marketing Executive</p><p>T: +357 22849 404<br />E: riak@marcusevanscy.com</p></div></div>An Interview with National Bank of Canada: The impact of the new regulatory framework on the XVA desk in bankshttps://globalriskcommunity.com/profiles/blogs/an-interview-with-national-bank-of-canada-the-impact-of-the-new-r2021-08-27T15:54:03.000Z2021-08-27T15:54:03.000ZRia Kiayiahttps://globalriskcommunity.com/members/RiaKiayia<div><img src="https://storage.ning.com/topology/rest/1.0/file/get/9492633486?profile=RESIZE_400x&width=200"></div><div><div class="news-title"><p class="title uppercase-title text-event-colour ng-binding"> </p><p class="title uppercase-title text-event-colour ng-binding">An Interview with Martin Doucet, Managing Director, Global Funding and Treasury - Regulatory Optimisation, at National Bank of Canada</p></div><div class="news-content"><div id="lp-pom-text-148" class="lp-element lp-pom-text nlh"><p>Ahead of the <a href="https://www.marcusevans.com/conferences/financialrescapitalopt?utm_source=media+partner&utm_medium=grc+blog&utm_campaign=cm486-+grc" target="_blank">Front Office Financial Resource and Capital Optimisation </a>Conference, we spoke with <strong>Martin Doucet</strong>, Managing Director, Global Funding and Treasury - Regulatory Optimisation, at <strong>National Bank of Canada</strong>. Martin is dealing with derivatives and financial resource optimisation. He has been in the financial services industry for over 20 years, spending all but two of them at the National Bank of Canada. He is based in Montreal and has a Master of Finance from the Université du Québec à Montréal.</p><p>*The views and opinions expressed herein are those of the respondent and do not necessarily reflect the position of National Bank of Canada.</p><p><strong>How do banks need to adapt to changing regulatory demands?</strong></p><p>Since the last financial crisis, regulatory reforms have significantly increased the capital requirements, especially for financial market activities. Some institutions took a strategic approach by reducing capital consumption and risk-weighted assets on some business segments. The most significant impact has been a pivot from pro-trading and directional activities, to a risk management and fees business. Banks need to evaluate the profitability reflecting theses changes before they deploy capital.</p><p><strong>What are the impacts of the new regulatory framework for XVA desk?</strong></p><p>XVA desk optimisation processes will be impacted by the implementation of the new capital requirements, especially the SA-CVA. Some elements like collateral valuation adjustment (ColVa) or funding valuation adjustment (FVA) are currently not captured under the new capital requirement. Although some jurisdictions could provide exemptions to exposure and hedge for these risks, this could create challenge for an XVA desk that actively manages the risk on an holistic basis. XVA desks need to have a process to differentiate hedges made for market risk versus those for ColVa or FVA. The issue is even more problematic if banks opt to implement the BA-CVA approach, where market risk hedges are not recognized.</p><p><strong>How can the XVA desk optimise its approach under the latest conditions?</strong></p><p>XVA desk activities have expanded from where they had to deal with managing CVA and FVA, to managing the cost of capital under multiple constraints (i.e. risk-weight assets (RWA) or leverage). Now, some institutions will now have to consider the standardized floor as a new constraint as we move through the implementation of the Basel III Reform. The challenge will be to perform forecast when the standardized floor will hit the institutions and become the binding constraint. This creates uncertainty on the true capital cost of the trade, especially for long-dated ones.</p><p><strong>What factors inform the approach towards generating a capital-efficient product mix?</strong></p><p>Refinement of the KVA calculation, which is driven by internal processes and calculation approach chosen by the institutions (rather than observable market prices) can provide opportunity to generate a more efficient capital allocation and improve pricing. <br /> Institutions should also consider elements such as the lack of diversification benefit between Delta and Vega sensitivities and lack of benefit of CVA index hedges in the new CVA calculation. Finally, the new regulatory rules will impact the recognition of index hedges as we move from risk factors based on the credit, to risk factors based on industry or economic sector.<br /> Finally, as mentioned in our presentation – Reshaping your trading business around new capital constraints, efficient solutions to reduce KVA rely on specific organisation constraints. For example, if an institution is capital constrained from the leverage ratio, moving transactions through a clearing house might not be the best solution.</p><p><strong>What do you hope to gain from attending the marcus evans Front Office Financial Resource and Capital Optimisation event?</strong></p><p>This event hopes to provide a perspective of challenges faced by the finance industry on optimising capital deployment to financial markets. Not only should the event provide a perspective on issues we are currently facing, but also soon to come as we move to a different regulatory regime, such as Basel III reform or UMR. It’s becoming more and more critical that people in front office teams integrate in their day-to-day activities awareness around the challenges posed by ever-increasing regulatory changes, and perspectives on how to consider these constraints in their decision process.</p><p><span style="font-size:12pt;"><strong>Martin will be presenting during Day One!</strong></span></p><p><span style="font-size:12pt;"><strong>Panel Discussion: Reshaping your trading business around new capital constraints</strong></span></p><ul><li><span style="font-size:12pt;">Reset business models to adapt to changing regulatory demands</span></li><li><span style="font-size:12pt;">Reflect capital constraints in pricing on the XVA desk</span></li><li><span style="font-size:12pt;">What is the most capital-efficient product mix?</span></li><li><span style="font-size:12pt;">Exploring the avenues of capital-focused business models</span></li></ul><p>For more information about the event, please visit <a href="https://bit.ly/38ms5LD">https://bit.ly/38ms5LD</a> or contact:</p><p>Ria Kiayia, Digital Media and PR Marketing Executive</p><p>T: +357 22849 304<br /> E: riak@marcusevanscy.com</p></div></div></div>Manage Short-term and Long-term Liquidity More Effectivelyhttps://globalriskcommunity.com/profiles/blogs/manage-short-term-and-long-term-liquidity-more-effectively2015-05-11T18:14:16.000Z2015-05-11T18:14:16.000ZMonique Filardihttps://globalriskcommunity.com/members/MoniqueFilardi<div><p><i>Liquidity and Treasury Professionals from the Banking Industry will come together to share practical solutions for optimizing liquidity management and improve business as usual</i></p><p><i> </i></p><p><b>New York, NY–May 2015</b><i>–</i> <b>GFMI</b>, a leader in knowledge sharing for capital markets, will host the <b>2<sup>nd</sup> Annual Liquidity and Funding Risk Management Conference</b> on October 5-7<sup>th</sup>, 2015 in New York, NY. Building on the success of the previous edition, this year’s meeting will demonstrate how by optimizing liquidity management banks will always be able to meet their financial short-term and long-term obligations, hence operate effectively and profitably and satisfy the regulators.</p><p> </p><p><b>Featuring Case Studies from Leading Banking Professionals, Including:</b></p><p><b> </b></p><p><b>Joel Babb</b></p><p>Managing Director, Enterprise Liquidity Risk Executive</p><p><b>Bank of America</b></p><p> </p><p><b>Ricardo Crumble</b></p><p>Senior Vice President, Head of Global Liquidity Risk Management</p><p><b>State Street Corporation</b></p><p> </p><p><b>Tom Holland</b></p><p>Risk Management Team Leader, Market and Liquidity Risk</p><p><b>Federal Reserve Bank of Chicago</b></p><p> </p><p><b>Douglas Croker</b></p><p>Senior Vice President, Head of Balance Sheet Management</p><p><b>Regions Financial Corporation</b></p><p> </p><p>Via case study presentations, our expert speaker panel will examine in depth the calculation, disclosure and reporting of the LCR with attendees. The NSFR will also be evaluated to make banks better prepared for its implementation when it is finalized later in the year. The impact of the SLR will be discussed to assess its impact on liquidity management. The event will demonstrate how by optimizing liquidity management banks will always be able to meet their financial short-term and long-term obligations, hence operate effectively and profitably and satisfy the regulators.</p><p><b> </b></p><p><b>For more information on this conference or to get a complete list of speakers, sessions or past attendees, click here to view the</b> <a href="http://www.global-fmi.com/cmu151agenda"><b>conference agenda</b></a> <b>or email Monique Filardi, Marketing & PR Coordinator at</b> <a href="mailto:moniquefi@global-fmi.com">moniquefi@global-fmi.com</a></p><p> </p><p><b>About Global Financial Markets Intelligence</b></p><p>GFMI is a specialized provider of content-led conferences for the financial markets. Carefully researched with leading financial market experts, our focused quality events deliver key bottom-line value through targeted presentations, interactive discussions and high-level networking opportunities. </p></div>Derivatives regulation - a corporate treasurer’s nightmarehttps://globalriskcommunity.com/profiles/blogs/derivatives-regulation-a-corporate-treasurer-s-nightmare2012-12-04T06:00:28.000Z2012-12-04T06:00:28.000ZTom Riesackhttps://globalriskcommunity.com/members/TomRiesack<div><p><em>By Tom Riesack and Ute Herzog</em></p><p>In the ‘new normal’ of highly regulated financial markets, corporate treasurers are feeling the reverberations in their daily activities. Corporates are using swaps to hedge their commercial risks, stemming from currency, interest and commodity price exposure. To mitigate such risks treasurers have a whole arsenal of instruments ready to deploy such as swaps, forwards and options as well as individually structured products.</p><p>Under current bilateral trading agreements, corporates typically do not put up any collateral with mostly one-way netting agreements in place and sometimes no netting agreements at all. Swap activities and the resulting mark-to-market valuations are covered by extended credit lines of their financial counterparties.</p><p>Pending regulations for the financial sector (especially Dodd-Frank Act (DFA), EMIR and Basel III) will have a direct impact on corporates who are classified within these frameworks as non-financial end-users. Whereas Dodd-Frank and EMIR require standardised swaps to be centrally cleared, Basel III introduces the CVA (credit value adjustment) charge which makes bilateral swaps vastly more expensive as the amount of core capital required is three times higher than before.</p><p>But corporates are granted exemptions under DFA and EMIR:</p><ul><li><strong>End-user exemption under DFA</strong><ul><li>Exemption from mandatory clearing and trading if swaps are used “to hedge or mitigate commercial risk”</li><li>Notification to the Commodity Futures Trading Commission required</li><li>Board approval to opt out of the central clearing requirement</li></ul></li><li><strong>End-user exemption under EMIR</strong><ul><li>No clearing obligation as long as certain thresholds are not breached</li><li>Thresholds apply to all trades not “objectively measurable as reducing risks”, which means not used to hedge commercial risks</li><li>Current thresholds for credit and equity derivatives are € 1bn and for interest rate, FX, commodity and other derivatives, € 3bn</li></ul></li></ul><p>Here’s the catch – no such exemption has been granted under Basel III until now. The result is the application of a CVA charge by financials when calculating the core capital consumption needed for deals with corporates although such trades would not be required to be cleared. The respective cost of trading is likely to be transferred to corporates making their hedging activities more expensive. <a href="http://www.dai.de/internet/dai/dai-2-0.nsf/dai_publikationen.htm?openPage&ID=1A2E366F190E809BC12579610038ADD8" target="_blank">One estimate by a group of 17 large German corporates puts this figure at a hike of 200% over today’s costs</a> and consequently there is still industry confusion about which exemptions will be granted. </p><p>The <a href="http://eactchairman.wordpress.com/2012/10/21/approaching-a-win-on-crd-ivcrr/" target="_blank">European Association of Corporate Treasurers</a> (EACT) is at the forefront of lobbying efforts to bring in line the CVA charge application with EMIR exemptions. But currently, corporate treasurers’ use of swaps could move in different directions if an exemption under Basel III is not achieved. Firms may:</p><ul><li>Keep going as before and bear the additional cost of trading</li><li>Adjust current processes to enable central clearing of swaps, which would alleviate the cost stemming from the CVA charge but would require corporates to put up collateral that they typically do not have</li><li>Reduce or effectively stop the hedging of their commercial risks to take on the risk rather than the cost.</li></ul><p><a href="http://www.fsa.gov.uk/library/communication/speeches/2012/1122-dl.shtml" target="_blank">As David Lawton, Director of Markets at the FSA put it in a recent speech</a>: “These are not challenges that will go away overnight […] I would encourage you to engage as much as possible. Consider whether you need to amend existing or enter into new bilateral credit support documentation to meet new margin requirements. Review existing operational processes to ensure they conform with the new technical standards. Provide notifications in good time to regulators if intending to rely on exemption.”</p></div>