OCC (Office of Comptroller of Currency) which supervises national banks and agencies of foreign banks in US released their semi-annual risk report last week. The report presents key issues facing banks that “pose threats to the the safety and soundness of banks and their compliance with applicable laws and regulations”. The report presents an optimistic message – while the risk of downside growth is increasing due to tightening financial conditions and geopolitical uncertainty the banks continue to be financially strong having navigated the pandemic and are well capitalized to face the economic headwinds.
The $49 billion meltdown of the algorithmic stablecoin Terra USD (UST) coin and it’s lined token, Luna this month has shown the shaky grounds on which the lofty valuations of stablecoins have been built. Terra which has fallen in value from being pegged to USD to less than 5 cents and Luna which was one of the top 10 stablecoins in Jan is now worth less than 1 cent. The death of Terra and Luna has also led to a $300 billion decline in the crypto industry.
What are Grey Swans and Gray Rhino’s in the world of risk management? Gray Swans are used to describe events that are possible but not considered likely to happen and that have extremely significant impact. Gray Rhino, this is the Elephant/Gorilla in the room and is an event that is highly probable, has high impact but crucially is a neglected threat.
An inside view on what was going on inside Credit Suisse that led the bank to have the biggest losses of $5.5 billion amongst major banks from the collapse of Archegos
Recent speech by FRB governor Lael Brainard and the Nov 2020 Financial Stability Board report shine light on the depth of the market turmoil last year and also point to the fact that it would have been much worse if the central banks had not intervened.
Junk Bonds Second quarter 2020 had a massive amount of debt issuance across High Yield (HY) and Investment Grade (IG) ratings and the month of