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Global regulators rein in risks from 'shadow banking'

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LONDONGlobal regulators published rules on Thursday to rein in risks in so-called shadow banking by increasing the amount of collateral required to back core transactions in a $137 trillion sector that continues to grow as mainstream banks shrink.

Shadow banking refers to credit creation through the likes of hedge funds, repurchase agreements, pension funds, insurers, and securities financing transactions.

Regulators have already imposed tougher capital requirements on mainstream banks after the 2007/09 financial crisis.

The Financial Stability Board (FSB), a regulatory task force for the Group of 20 economies (G20), published final rules on Thursday for regulating “shadow bank” transactions in case risky banking activities migrate to the hitherto less regulated sector.

They are the first set of global “haircuts” that must be applied to securities financing transactions between non-banks.

Haircuts refer to how collateral used for backing transactions must be discounted. In a securities financing transaction, a shadow bank borrows cash and has to post collateral in the form of securities such as shares.

Under the FSB rules a non-bank would have to post $106 in shares for every $100 borrowed.

The bulk of such transactions are conducted between banks or banks and non-banks, and the FSB has already published haircuts for these trades.

Thursday’s announcement signals a widening in the scope of shadow bank rules to cover the smaller but growing non-bank to non-bank transactions.

“Non-bank financing is a welcome additional source of credit to the real economy,” FSB Chairman Mark Carney said.

The FSB said it has also extended by a year to 2018 the deadline for applying the new haircuts.


Separately the FSB updated its figures on the size of the global shadow banking sector and introduced a new, narrower figure for the shadow banking activities it believes could pose risks.

The narrow figure excludes firms such as insurers and pension funds, but includes the likes of hedge funds and collective investment vehicles, such as money market funds, which can be susceptible to runs in a crisis.

The narrower figure shows that shadow banking grew to $36 trillion, or 12 percent of financial system assets, in 2014. That is up $1.1 trillion on the previous year, the FSB said.

A wider aggregate figure for all shadow banking activities, including pension funds and insurers who lend out their securities, grew by 9 percent to $137 trillion over the past year, representing 40 percent of total financial system assets.

“Perhaps more surprisingly, money market funds experienced 20 percent growth in 2014, largely driven by some euro area jurisdictions and China,” the FSB said.

The FSB announcements coincide with a summit of G20 leaders in Turkey next week which will take stock of their regulatory push since the financial crisis.

(Editing by David Goodman)

Source: R-Business


Wall Street at session lows as rate hike looms; commods weigh

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U.S. stocks hit session lows in early afternoon trading on Thursday, as a fall in commodity prices weighed on energy and materials stocks, and comments by several Federal Reserve policymakers pointed to an interest-rate hike next month.

The rout hit all 10 major S&P sectors and pushed the Dow and S&P 500 below their 200-day moving averages.

Investors are keeping a watchful eye on whether the Fed will raise interest rates off near-zero levels in December, as is widely expected after Friday’s strong jobs data.

Fed Chair Janet Yellen on Thursday did not comment on the economy or the timing of a rate hike.

But New York Fed President William Dudley said “it is quite possible that the conditions the Committee has established to begin to normalize monetary policy could soon be satisfied.”

“The possibility of a further delay (of a rate hike) is getting less and less,” said David Schiegoleit, senior portfolio manager at U.S. Bank Private Client Reserve in Los Angeles.

Higher rates increase borrowing costs for companies.

At 12:33 p.m. ET (1733 GMT), the Dow Jones industrial average was down 202.4 points, or 1.14 percent, at 17,499.82.

The S&P 500 was down 19.26 points, or 0.93 percent, at 2,055.74 and the Nasdaq Composite index was down 28.14 points, or 0.56 percent, at 5,038.88.

Crude prices hit 2-1/2 month lows, while copper and other metal prices tumbled to multi-year lows, hurt by a strong dollar, weak Chinese data and concerns of oversupply.

The energy sector sank 2.3 percent. Chevron and Exxon were down more than 2 percent, weighing the most on the S&P and the Dow.

The materials sector was off 1.45 percent, led by a 5.8 percent fall in miner Freeport-McMoRan.

Retailers were a bright spot after Kohl’s reported better-than-expected quarterly net sales, sending its shares up 5.7 percent at $45.61.

J.C. Penney was up about 3.9 percent. Nordstrom, which was up 1.7 percent, is scheduled to report results after the close.

Cisco, also set to report after the bell, was up 0.4 percent and was among the biggest influence on all three indexes.

Advanced Auto Parts dropped nearly 14 percent to $167.55 after it reported quarterly profit below estimates.

PayPal’s shares slid 2.8 percent to $35.30 after the Wall Street Journal reported Apple was in talks with U.S. banks to develop a rival payment service. Apple was flat.

Declining issues outnumbered advancing ones on the NYSE by 2,368 to 613. On the Nasdaq, 1,867 issues fell and 822 advanced.

The S&P 500 index showed two new 52-week highs and 16 new lows, while the Nasdaq recorded 25 new highs and 112 new lows.

(Reporting by Abhiram Nandakumar in Bengaluru; Editing by Savio D’Souza)

Source: R-Business


Mystery cancelled air show deal sets Dubai abuzz

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DUBAIThe Dubai Airshow ended in a fog of speculation on Thursday when UAE organisers abandoned plans to announce a multi-billion-dollar deal that could have reversed a slump in orders at the Middle East’s largest aviation event.

A senior UAE official said the deal would have added 10-15 percent to total deals which he estimated at $39.8 billion, but denied it involved a keenly awaited French fighter purchase.

He was speaking on the last day of the Nov. 8-12 event, a day after the UAE’s air force chief told Reuters that talks to buy the French Rafale were in the “final stages”.

Word of the hurriedly arranged news conference swept through the exhibition, sending Western defence executives and government officials scurrying to join a depleted press corps to hear what two of them predicted would be a Rafale order.

Major General Abdullah al-Hashimi, executive director of strategic analysis at the UAE defence ministry, told the news conference that the deal he had hoped to announce could not be finalised but was not a combat jet deal.

“It’s too sad that we couldn’t announce it. The deal was looking good,” al-Hashimi said.

“If it was the UAE armed forces, it would be announced at the Dubai Airshow, but it’s not,” he added.

Pressed on why the news conference was being hosted by the armed forces if the deal did not concern them, he said, “We are a committee of the Dubai airshow. That’s the reason I’m sitting here, that’s the reason I’m announcing this and that’s the reason I’m thanking you for being here.”

Abu Dhabi’s negotiations to buy 60 fighter jets have dragged on for years and have a history of producing surprise announcements coinciding with the show, held every two years.

The theatrical end to an otherwise quiet event – subdued by low oil prices and concerns over the cost of Middle East conflicts – highlighted the stakes involved for France’s competitors as they try to dampen a surge in Rafale exports.

Military analyst Francis Tusa however said the $4-6 billion value implied by al-Hashimi’s remarks was too low to involve 60 of the planes, based on prices paid by Egypt and Qatar.

“If Rafale were in the bag they would have signed it on day one; they never leave the big announcements until the end.”

A fresh Rafale order would be a setback for the four-nation Eurofighter programme and Lockheed Martin, which had offered upgrades to existing F-16s.

Rafale export hopes rose as Britain’s BAE Systems said it was cutting Eurofighter production.

(Additional reporting by Andrea Shalal, editing by William Maclean and David Evans)

Source: R-Business

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