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On April 6, 2016, the U.S. Department of Labor (DOL) issued its final rule expanding the “investment advice fiduciary” definition under the Employee Retirement Income Security Act of 1974 (ERISA), modifying the complex of prohibited transaction exemptions for investment activities in light of that expanded definition (the “Rule”).[1] This is…

Introduction to Counterparty Credit Risk The evolution of counterparty credit risk started with counterparty (credit) limits, settlement limits and exposure measurements such as potential future exposure. This progressed to the use of unilateral collateral, then the bilateral exchange of collateral. To assist in the pricing for the cost of dealing…

Overview of T+2 Settlement The late J. Carter Beese Jr., former SEC commissioner, gave a speech in 1993 where he famously said, “Nothing good ever happens to a trade between trade date and settlement date.” His remarks were meant to encourage the industry to shorten the existing T+5 settlement cycle…

Introduction to STACR and CAS Fannie Mae and Freddie Mac now have issued numerous credit risk transfer notes in this ever evolving market. This article summarizes some of the highlights of the issues/securities called Structured Agency Credit Risk or STACR, which are issued by Freddie Mac, and Connecticut Avenue Securities or CAS, which…

Enterprise Risk Management (ERM) Introduction Enterprise Risk Management (ERM) is one of the hottest areas in the risk management discipline today, with new advances in technology and communications creating both opportunities and challenges in the area. Experts have conducted considerable research in the field of ERM in the last fifteen…

Central counterparty clearing houses, or more simply central counterparties (“CCPs”), have emerged from the 2008 financial crisis as lynchpins of the global derivatives markets, and therefore, a critical part of the infrastructure of the global financial system. This article addresses the following questions: What are CCPs, and what role do…

The financial crisis exposed a number of critical weaknesses across the largest banks and highlighted that many BHCs had a limited ability to effectively identify, measure, and control their risks, and to assess their capital needs. CCAR Review 2015, March 2015, Board of Governors, Federal Reserve Stress testing has been…

Low interest rates equals strong currency? The idea of borrowing on an uncovered basis in a low interest rate foreign currency has been around for many years. The Swiss franc in the 1980s, the Japanese yen in the 1990s and more recently, Hungarian consumers taking out mortgages denominated in euros.…

Comparing and Contrasting CCAR and DFAST The Federal Reserve System’s (the Fed) regulatory responsibilities include the oversight of bank holding companies (BHCs), savings and loan holding companies, state member banks, and systemically important nonbank financial institutions (SIFIs). The Fed has reacted to some of the negative outcomes associated with the…

The Federal Reserve Tools: Past and Present Pundits all seem to agree that, later this year, the Federal Reserve will finally raise rates. Some seem to think that will occur in June while others believe it will be September. Regardless of when it happens, now would be a good time…

We thought it might be helpful to update our municipal bond market view from last year with our “crystal ball” for 2014. First, we will examine the overall market for any changes and insights to the future. Next, we will review two issues that have essentially been resolved. Lastly, we…

Encountering a New Standard “That did not go too well” said Barry, my investment expert friend as we left the testing center. He was an extremely intelligent financial expert who would later become well-known for uncovering an infamous financial fraud. But on this day, he correctly anticipated that he had…