Markets are now torn between upbeat outlooks for corporate earnings and the risks posed to these outlooks by a very low jobless rate. A recent consensus forecast has S&P 500 operating income growing by 22% in 2018 and by 11% in 2019. Moreover, the Blue Chip consensus believes that the pretax operating profits of all U.S. corporations will increase by 5.2% in 2018 and 4.4% in 2019. In addition, an expected drop by the U.S.' high-yield default rate from April 2018's 3.7% to 1.5% by April 2019 complements the positive outlook for profits. Nevertheless, April's historically low unemployment rate of 3.9% hints of limited upsides for both domestic spending and U.S. output that may thwart expectations of operating earnings growth and fewer defaults.
IMF published a working paper that studies the interconnectedness of the global financial system and its susceptibility to shocks.
BCBS issued the standard for capital treatment of simple, transparent, and comparable (STC) short-term securitizations.
The net equity buybacks of U.S. nonfinancial corporations fell from 2016's $581 billion to 2017's $391 billion possibly in response to the historically rich valuation of U.S. common stock. Indications are that first-quarter 2018's net stock buybacks were up considerably from 2017's final quarter mostly in response to the volatility that followed the setting of the now record high for the market value of U.S. common stock on January 26, 2018.
CPMI published a paper on the strategy for reducing the risk of wholesale payments fraud related to endpoint security. The strategy is composed of seven elements that work holistically to address all areas relevant to preventing, detecting, responding to, and communicating about fraud.
FSB launched a consultation on the recommendations for consistent national reporting of data on the use of compensation tools to address misconduct risk.
Mergers, acquisitions and divestitures (M&A) wield considerable influence over corporate credit quality, where M&A's impact on a single company's credit standing can vary over time. For example, a credit rating may be downgraded early on because of the substantial increase in leverage brought on by a debt-financed acquisition. However, over time, the acquisition may help to boost profitability, liquidity and the company's market value by enough to eventually prompt a credit rating upgrade.
Prudent credit risk management ensures institutions maintain sufficient capital and limit the possibility of a capital breach. With CECL and IFRS 9, the resulting trend toward greater credit earnings volatility raises uncertainty in capital supply, ultimately causing an increase in required capital. It is ever more challenging for institutions to manage their top-of-the house capital while steering their business to achieve the desired performance level. This paper introduces an approach that quantifies the additional capital buffer an institution requires, beyond the required regulatory minimum, to limit the likelihood of a capital breach. In addition, we introduce a new measure that allocates capital and recognizes an instrument's regulatory capital requirements, loss allowance, economic concentration risks, and the instrument's contribution to the uncertainty in capital supply and demand. In-line with the Composite Capital Measure introduced in Levy and Xu (2017), this extended measure includes far-reaching implications for business decisions. Using a series of case studies, we demonstrate the limitations of alternative measures and how institutions can optimize performance by allocating capital and making business decisions according to the new measure.
LEIROC published its second progress report on Global Legal Entity Identifier System (GLEIS) and the regulatory uses of Legal Entity Identifier (LEI).
IASB published an updated work plan, along with the update of its meeting in April 2018.
IMF published a paper that summarizes the results of its annual survey on the macro-prudential policy in member countries.
The high-yield bond market continues to shrug off equity market volatility. Notwithstanding a climb by the VIX index's month-long average from December 2017's 10.3 points to April-to-date's 18.6 points, as well as a rise by the U.S.' high-yield default rate from January 2018's 3.3% to March's 3.9%, April 25's composite high-yield bond spread of 352 basis points was thinner than the 359 bp of year-end 2017. Still, thin spreads reflect strongly held expectations of a renewed slide by the high-yield default rate well into 2019.
FSB published a second consultation on the proposed governance arrangements for the unique product identifier (UPI).
The FSB Secretary General Dietrich Domanski updated the audience on the planned work of FSB for 2018, while speaking at the Eurofi Seminar in Sofia.
FSB published an article by the Secretary General Dietrich Domanski on achieving the G20 goal of resilient market-based finance.
This issue highlights that IAIS held a public discussion session to provide background information on the resolution of comments received during the public consultation on ComFrame, answer stakeholder questions on the outcome of the consultation, and present the next steps in the development of ComFrame.
During the keynote speech at the ISDA Annual General Meeting, William Coen, the Secretary General of BCBS, discussed the market risk framework, which is the one element of the post-crisis reform agenda has yet to be fully finalized.
IOSCO published a consultation report on good practices for audit committees in supporting audit quality. The report is intended to assist audit committees of issuers of listed securities in promoting and supporting audit quality.
BCBS published the fourteenth progress report on adoption of the Basel III regulatory framework.
FSB published a report that presents a toolkit for firms and supervisors to strengthen the governance frameworks to mitigate misconduct risk.
BCBS updated the list of frequently asked questions (FAQ) and the workbook (version 3.7.5) on Basel III monitoring for the collection of December 2017 data.
A centerpiece of presidential candidate Trump's economic agenda was to take a hard line on our trading partners, particularly those with which the U.S. runs a trade deficit. China and Mexico were the object of his strongest recriminations, and he argued that large tariffs should be slapped on their exports to the U.S. Trump also labeled the Trans-Pacific Partnership and North American Free Trade Agreement as among as the worst trade deals ever.
This whitepaper discusses the results of the RegTech survey conduced by Risk.net and Moody's Analytics.
The Dominican Republic's regulatory authority for insurance hosted the Second High-level Meeting in Santo Domingo.
IFRS 17 introduces a requirement for insurers to use fair value and market-consistent approaches to liability valuations as the basis for reporting their accounts. Insurers face a significant challenge in clearly differentiating between the separate components of their balance sheet, and in doing so without introducing artificial noise or volatility into their reporting.
In this webinar, Mark Zandi and our team of economists use the Moody's Analytics Global Macroeconomic Model to assess the impact of various trade scenarios.
CPMI and IOSCO published the framework for supervisory stress testing of central counterparties (CCPs).
The Global Financial Stability Report (GFSR) provides an assessment of the global financial system and markets and addresses the emerging market financing in a global context.
FSI of BIS published a paper on the identification and measurement of non-performing assets (NPAs).
CPMI and IOSCO issued technical guidance to authorities on harmonized definitions, formats, and usage of a set of critical data elements for over-the-counter (OTC) derivative transactions reported to trade repositories, excluding the Unique Transaction Identifier (UTI) and the Unique Product Identifier (UPI).