Fed unveils additional stress test scenarios, Banks look at unconventional economic indicators

Bipartisan group of lawmakers wants relief for CMBS borrowers | Fed details additional stress test scenarios | Banks look to unconventional economic indicators

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June 23, 2020

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Managing Risk in Today's Markets

A bipartisan group of more than 100 US lawmakers have asked the Trump administration and Federal Reserve to provide a lending facility for borrowers in the commercial-mortgage-backed securities market. "Without a long-term relief plan in the face of an elongated crisis, CMBS borrowers could face a historic wave of foreclosures starting this fall, impacting local communities and destroying jobs for Americans across the country," they wrote in a letter.

Full Story: The Wall Street Journal (tiered subscription model) (6/23)

Fed details additional stress test scenarios

A sensitivity analysis added to the Federal Reserve's annual stress test consists of three adverse scenarios to gauge banks' ability to weather different forms of recovery from the coronavirus pandemic, says Randal Quarles, vice chair for supervision at the central bank. "We will use the results of our sensitivity analysis to inform our overall stance on capital distributions and in ongoing bank supervision," Quarles says.

Full Story: Reuters (6/19), The Wall Street Journal (tiered subscription model) (6/19), Risk (subscription required) (6/19)

Banks look to unconventional economic indicators

Banks are looking beyond tried and tested indicators to gauge the economy's health and future course. Footfall through airports and retailers, restaurant reservations and drivers' requests for map directions are among alternative indicators considered.

Full Story: The Wall Street Journal (tiered subscription model) (6/21), Reuters (6/22)

Volume of looming business bankruptcies may swamp system

Pandemic-related bankruptcies are already part of the corporate landscape and many more are likely coming, driven in part by hefty debt loads. The sheer volume of filings could put pressure on the bankruptcy system and make it more difficult to save viable companies.

Full Story: The New York Times (tiered subscription model) (6/18)

Bloomberg Insights

How risk management is changing

Bloomberg's Jose Ribas, global head of risk and pricing solutions, says that volatility due to the coronavirus pandemic is changing risk management for financial firms. He also talks about how technology can be used to help better understand risk.

Full Story: Bloomberg Professional Services (6/23)

For banks, occupancy costs rise due to pandemic

The cost of bringing workers back to office towers may rise by as much as 50% as companies need to put coronavirus safety measures in place, according to an estimate by Deloitte Consulting. Safety precautions such as new air conditioning filters, more trash cans and personnel to monitor employees' temperatures are some of the steps that will add to costs.

Full Story: Bloomberg Professional Services (6/22)

Pandemic accelerates consumers' move to digital

The coronavirus pandemic is accelerating the trend toward online sales and motivating companies to invest in digital retail technology. The use of e-wallets, for example, is on pace to capture $1.4 trillion in coming years.

Full Story: Bloomberg Professional Services (6/17)

Trading Trends

Bond trading increasingly moves digital

Volatility caused by the coronavirus pandemic is pushing bond traders to increasingly adopt electronic trading, especially when completing large orders. Although many stress that voice trades will continue to be part of market-making, electronic bond-trading platforms are seeing record volumes.

Full Story: Reuters (6/22)

Post-virus challenges await US, European CLO markets

The collateralized loan obligation market has been navigating turbulence in underlying corporate credit because of the coronavirus pandemic. The European market faces a drought in deals that might intensify early next year, while the US market might see a wave of downgrades from ratings agencies.

Full Story: GlobalCapital (free content) (6/18)

NYSE renews bid for capital raising in direct listings

The New York Stock Exchange has asked the Securities and Exchange Commission a second time to approve a rule change that would let capital be raised by companies conducting a direct listing. The SEC allows direct listings as an alternative to initial public offerings but only if no capital is raised in the process.

Full Story: Reuters (6/22)

Companies showing less appetite for stocks amid virus

PNC Financial Services Group Inc.'s sale of its stake in BlackRock and Sanofi's divestiture of stock in Regeneron Pharmaceuticals Inc. highlight how companies are changing investment strategies in response to the coronavirus pandemic. Some boards have grown averse to having cash tied up in minority ownerships of other companies.

Full Story: The Wall Street Journal (tiered subscription model) (6/22)

SmartBrief Originals

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Operational Efficiencies

Hackers target small, well-connected companies

The cyberattack on Epiq Systems Inc. highlights how hackers are targeting companies that may not be well known to the public but have connections to major multi-nationals. "Somebody like Epiq gets hit, it matters to everyone," said attorney Eric Monzo.

Full Story: The Wall Street Journal (tiered subscription model) (6/18)

Tech firms move into wealth management

Major tech names are developing infrastructure that will enable them to enter the wealth-management business, according to a Boston Consulting Group report, which says they will provide formidable competition.

Full Story: Financial Times (subscription required) (6/23)

Hackers pose as Wells Fargo security in phishing scam

Hackers sent fake calendar invitations to as many as 20,000 people working for companies that do business with Wells Fargo, posing as the bank's security team in an effort to collect their personal information. It is not known how many individuals gave out personal information.

Full Story: American Banker online (free content) (6/22)

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Regulatory Review

SEC, DOJ to jointly investigate exchanges' data fees

The Securities and Exchange Commission and the Justice Department will conduct a joint inquiry on whether fees for market data charged by exchanges are subject to competition. "Competition offers numerous consumer benefits regardless of the underlying market," Assistant Attorney General Makan Delrahim said at an event alongside SEC Chairman Jay Clayton. "A regulatory scheme that omits competition considerations is likely to leave, as they say, money on the table, and consumers disadvantaged."

Full Story: The Wall Street Journal (tiered subscription model) (6/22)

Treasury, SBA make U-turn on naming PPP participants

The Treasury Department and the Small Business Administration have reversed a decision not to name firms that have received Paycheck Protection Program loans of $150,000 to $10 million and say the data will be released. The reversal comes in response to pressure from lawmakers and industry bodies.

Full Story: BNN Bloomberg (Canada) (6/19)

EU's recovery to rely heavily on banking

The EU is bracing for an historic recession stemming from measures taken to control the spread of the coronavirus. "During this difficult period, the effectiveness of the recovery will be shaped by how well the banking sector, capital markets and authorities can work together to support European businesses," writes Pablo Portugal of the Association for Financial Markets in Europe.

Full Story: International Banker (6/22)

Research & Analysis

Commentary: Regulators need new approach to fintech

The digitization of financial services is forcing regulators to consider their approach to overseeing this emerging sector, writes Accenture's Oliver Reppel. Managing data will be key to keeping regulations relevant, he writes, as will automated reporting and closer cooperation between regulators and financial services firms.

Full Story: Accenture (6/22)

Experts: Post-pandemic economy to be less globalized

Globalization will be scaled back when the coronavirus pandemic ends as nations decide more of their economic activity is essential to national security, trade experts say. "That pre-COVID[-19] balance between efficiency and resilience will have to tilt to the side of resilience," says Pascal Lamy, former director-general of the World Trade Organization.

Full Story: The Wall Street Journal (tiered subscription model) (6/19)

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