Credit & Risk

Counterparty Risk Evolution

2 min readCounterparty risk associated with financial institutions seems to be the hot topic lately. From San Francisco to Miami, treasury conference attendees were discussing the issue and the conferences devoted working sessions to the topic. We believe that this is not a passing fad; rather, counterparty risk in one’s enterprise needs to be addressed and managed…

Counterparty Risk Management for Corporate Treasury Functions

Counterparty Risk Management for Corporate Treasury Functions

2 min readAbstract Experience has taught us that even seemingly strong counterparties can fail without warning. Counterparty risk management has become more challenging in recent decades due to concentrated exposures, complex financial instruments and deteriorating bank credit. Corporations should manage risk proactively, have an integrated risk policy across business lines, diversify risk by setting exposure limits according…

The End of an Era

1 min readIdentifying credit trends and translating these trends into risk management practices, whether in the management of a buy list or in the management of counterparty risk, is a key function within treasury departments. The negative trends in bank ratings we discussed more than a year ago, “Bank Ratings Headed for BBB, How the Megatrend May…

Targeting Consistent Risk Tolerances

1 min readThis month I attended a client’s audit committee meeting to review cash investment strategies and an interesting question was raised; the treasurer asked if it was time to start evolving their risk tolerance away from a Government-only strategy. This was a provocative question and one that we hear frequently these days. Although this particular company…

Applying Constant Risk Aversion to Cash Investment Management

Applying Constant Risk Aversion to Cash Investment Management

2 min readAbstract In this paper, we discuss the concept and benefits of constant risk aversion in cash portfolio construction. The process may help treasurers understand, gauge and rationalize investment decisions to achieve consistent risk characteristics and to avoid the whiplash that can result from drastic pendulum swings between high-risk and no-risk. The Need for a Constant…

Too Big to Fail?

1 min readOver the last decade, the “too big to fail” or systemically important status of banks, combined with the FDIC’s Transaction Account Guarantee (TAG) program, has allowed many of the country’s largest banks to grow even larger. Treasury professionals who may have been reassured by a bank’s brand and size also may have increased counterparty exposures…

The New Normal of Riskier Mega Banks

The New Normal of Riskier Mega Banks

2 min readAbstract Global banking authorities’ moves to resolve systemically important financial institutions (SIFIs) may result in first losses being borne by bank creditors in the event of a failure. Under the new resolution authority, size no longer may be an indication of safety for bank credit. Instead, one should look to a bank’s fundamental business condition…

Be Prepared for the TAG Expiration, Part II

Be Prepared for the TAG Expiration, Part II

2 min readAbstract Deposits at the 20 largest U.S. banks are generally concentrated in banks with Tier 2 ratings, many of which are just one step away from BBB status. Significant cross-concentration of bank names also exists in large prime money market funds. The dominance of bank exposure in corporate portfolios through deposits and money market funds…

Plan for the Worst, Hope for the Best

1 min readDecember’s arrival brings with it tidings of uncertainty for Treasury professionals. The looming fiscal cliff and the December 31st expiration of the Transaction Account Guarantee (TAG) program bracket a variety of outcomes for tax policy, spending and deposit regulations that could have wide-ranging repercussions for businesses. One challenge we explored last month was the expiration…