Bionic Turtle’s Week in Risk (ending March 19th)

Hello BT fans! We have a some great Week in Risk articles to share with you this week, and we’ve included some of the most interesting discussions that have been going on in our forum! Make sure to drop by our forum to ask questions or to join in on the FRM conversations! We have also published new study notes and question sets this week for all of our members who have purchased FRM study packages so make sure to check out the study planner for new materials! Have a great week!

New Practice Questions

Drivers of market liquidity

In the forum this week (selected only) or Major News

VaR and expected shortfall

Banks, banking, political and regulatory

Goldman Sachs Delinquent Mortgages Relief

Consumer relief foreclosure

Bank overdraft fee revenue bounces back

Dodd Frank Rollback

Technology, including FinTech and Cybersecurity

  • Bitcoin Miners Signal Revolt Amid Sluggish Blockchain https://www.bloomberg.com/news/articles/2017-03-13/bitcoin-miners-signal-revolt-in-push-to-fix-sluggish-blockchainNow, after more than two years of bitter infighting among the global bitcoin community about how to fix the problem, some of its most influential members are giving up on reaching consensus. Instead, they’ve begun backing a controversial solution known as Bitcoin Unlimited. If the gamble pays off, it could ease congestion and may help bring the community back together. If it fails, the digital currency could face a hard fork into separate variants, effectively splitting bitcoin into two currencies.

blockchain backlog

blockchain backlog network costs

Natural Science, including Climate and Energy

global loss events natural disasters

Books and Courses (including Journal/SSRN)

The Spider Network

Personal Finance

FICO score- credit score

Enterprise risk management (ERM) including governance

board of directors compensation

Case Studies and Companies, including Strategic or Reputation risk

Acmans Valeant Bust

Quantitative Analysis (FRM P1.T2)

Financial Markets and Products, including Interest Rates, Commodity Risk, and Foreign Exchange (FX)(FRM P1.T3)

  • Federal Reserve issues FOMC statement https://www.federalreserve.gov/newsevents/pressreleases/monetary20170315a.htmIn view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 3/4 to 1 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.
  • The Fed’s Era of Easy Money Is Ending https://www.nytimes.com/2017/03/13/upshot/the-feds-era-of-easy-money-is-ending.htmlThe officials appear to have plotted a course to raise rates a few times a year with expectations of reaching the so-called neutral rate — at which monetary policy is neither stimulating nor slowing the economy — near the end of 2019. As of their December meeting, Fed leaders think that neutral rate is 3 percent.

Feds raising rates

global private equity report

Feds global dollar problem

Valuation and Risk Models, including Country risk (FRM P1.T4)

Operational risk, including Legal risk (FRM P1.T7)

Investment risk, including Pensions (FRM P1.T8)

  • In Puerto Rico, Teachers’ Pension Fund Works Like a Ponzi Scheme https://www.nytimes.com/2017/03/08/business/dealbook/puerto-rico-teacher-pensions.htmlPuerto Rico, where the money to pay teachers’ pensions is expected to run out next year, has become a particularly extreme example of a problem facing states including Illinois, New Jersey and Pennsylvania: As teachers’ pension costs keep rising, young teachers are being squeezed — sometimes hard. One study found that more than three-fourths of all American teachers hired at age 25 will end up paying more into pension plans than they ever get back.

puerto rico teachers pension like ponzi scheme

Current issues (FRM P2.T9)

  • Goldman Sachs’ lessons from the Quant Quake (Nearly 10 years after its nadir, quantitative investing is again the hot trend in finance) https://www.ft.com/content/fdfd5e78-0283-11e7-aa5b-6bb07f5c8e12Quantitative investing is once again the hottest trend in finance. Computer-driven hedge funds have just notched up their eighth straight year of client inflows, doubling their assets from 2009 to $918bn, according to Hedge Fund Research. Even this understates the interest, as many traditional hedge funds and big mutual fund managers are all trying to blend more quantitative techniques with their traditional approaches … Understanding how markets function increasingly requires knowledge of a Greek-based alphabet soup of concepts and phenomena — such as alpha generation, smart beta, gamma scalping, delta hedging and option theta. Their speed has accelerated markedly, and the number of market anomalies, odd trading patterns and mysterious “flash crashes” have increased in tandem with the ascent of algorithms.
  • Getting Through the Long Post-Crisis Hangover https://www.bloomberg.com/view/articles/2017-03-13/getting-through-the-long-post-crisis-hangoverTo oversimplify wildly: In a world of secular stagnation, we have financial bubbles and busts because the underlying rate of economic growth is so slow. In a world of financial cycle drag, we have slow economic growth because financial volatility is weighing on the economy.” (Reinhart and Rogoff’s This Time is Different was assigned in the 2010 FRM, before the “brand-tainting controversy” that featured model risk!)
  • Currency Traders Race to Reform ‘Last Look’ After Bank Scandals https://www.bloomberg.com/news/articles/2017-03-17/currency-traders-race-to-reform-last-look-after-bank-scandalsLast look gives a market maker, such as a dealer, time to back out of a trade. Some argue that the practice has merits, allowing market makers to quote better prices. But a firm could unfairly learn a counterparty’s intentions without having to complete the transaction. The Bank of England has said the practice is vulnerable to misuse.

Top currency traders

foreign exchange trading

  • Factor Investing and the Importance of Market Cycles http://www.allaboutalpha.com/blog/2017/03/15/factor-investing-and-the-importance-of-market-cycles-2/
  • Super-easy monetary policy and reflating Japan’s economy: The Bank of Japan’s mission is incomplete http://voxeu.org/article/super-easy-monetary-policy-and-reflating-japan-s-economyThe negative interest rate policy lowered the entire yield curve and resulted in reducing longer-term yields to a significant degree. While the BOJ emphasised this was a result of its successful monetary policy, the negative interest rate policy raised a number of concerns and has potential side effects. These adverse impacts can be classified into four issues: a decline in the profitability of the financial sector and potential financial instability risk; promotion of cash substitution and a deterioration in households’ sentiments; a decline in liquidity and weakened functions of the JGB markets; and the BOJ’s operational challenges and balance sheet risk.

 

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