Restoring Confidence in Reference Rates By William C. Dudley, President and CEO of the Federal Reserve Bank of New York

Dudley_articleThe NYU Stern Salomon Center for the Study of Financial Institutions welcomed William Dudley, president and CEO of the Federal Reserve Bank of New York, to speak with students, alumni, press and guests on October 2, as part of Stern’s Financial Policy Platform Speaker Series.

The following is an excerpt from Mr. Dudley’s speech:

“Over a period of just a few decades, reference rates grew greatly in terms of their role and importance in financial markets.  For example, the use of one of the best known reference rates—the London Interbank Offered Rate, or LIBOR—has soared, so that it is now referenced by approximately $300 trillion dollars of financial contracts.  Reference rates have become a ubiquitous but largely hidden fiber in the fabric of financial markets.  They play a critical role in making financial markets more efficient by reducing information frictions, lowering transactions costs and mitigating the moral hazard.

At the same time, as recent enforcement actions and criminal investigations have made all too clear, some of these reference rates have been systematically manipulated by individuals at key financial institutions.  The assumption that the design in how these rates are constructed would be resistant to attempts at manipulation has turned out to be wrong, and the belief in the integrity of these rates has turned out to be misplaced.

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It is a sad state of affairs if unethical behavior is socialized among new traders with the explanation that this is business as usual, and, if compliance and risk management are inadequate as a counterweight to prevent or identify wrong-doing.”

Ready the entire speech on the Federal Reserve Bank of New York’s website here.

Additional coverage from the Wall Street Journal.

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Will Modi Reset India’s Emerging Market Economy? By Professors Roy C. Smith and Ingo Walter

The following is an excerpt from an op-ed published in The BRICS Post by NYU Stern Professors Roy C. Smith and Ingo Walter:

Smith-and-Walter_articleThe forthcoming visit to Washington by Narendra Modi, his first since becoming India’s Prime Minister last April, is likely to have little impact.

Yes, it will attract the usual ceremonies and displays of goodwill, but it comes at a time of disillusionment with the BRICS, and suspicion about Mr. Modi’s real political objectives. So it is not likely to change much of anything.

For the past 15 years, the BRICS have been seen as the world’s best hope for sustainable growth. These five countries, representing 40 per cent of the world’s population and 25 per cent of its GDP in 2013, recorded growth rates 4 to 5 times greater than those of the US, Europe and Japan, and threatened to displace them as the world’s most important economic powers in another 20 years or so.

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Mr. Modi has political capital to spend in India, and he ought to use some of it to winnow government subsidies, reduce protection of certain economic sectors, and to do all he can to increase basic competition in goods and services. Infrastructure and education are important too, but these take a long time to improve. The most immediate need is to get the growth rate back to a 9-10 per cent level.

Read full article as published in The BRICS Post.

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Professor Ed Altman’s Z-Score is Featured

The following is an excerpt from USA Today:

ealtmanDoes it seem you’re the last to know when a company is in serious financial trouble and end up holding the worthless stock? There’s an early warning system all investors need to know about — the Altman Z-Score — that’s is calling out six companies for being in a tough spot.

The Z-Score — a financial indicator that predicts when companies are careening toward serious financial distress — is commonly used by investment professionals. And there’s no reason why individuals can’t use it, too.

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“There’s an early warning system all investors need to know about — the Altman Z-Score — that’s is calling out six companies for being in a tough spot. The Z-Score — a financial indicator that predicts when companies are careening toward serious financial distress — is commonly used by investment professionals. And there’s no reason why individuals can’t use it, too.”

Read the entire article here.

Additional coverage in The Domains.

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MSRM Class of 2014 Alumnus Leads a Research Project on Risk Management in the Aid and Development Sector

Disparte, Dante pictureA recent research project titled “Fleet Risk Management” led by MSRM Class of 2014 Alumnus and Managing Director at Clements Worldwide, Dante Disparte, focused on risk management in the aid and development sector.

Some large fleet operators choose self-insured models to cover fleet-related risks, such as physical damage, breakdown and liability claims.  While this move may produce certain advantages, most self-insured firms find themselves laboring under the burden of professionalizing the claims administration process.

With more than 65 years of insuring assets all over the world and as the largest insurer of the aid and development fleet, Clements Worldwide’s Partner Solutions offers a unique Fleet Risk Management solution.  World class claims management is as much art as it is science and can help firms proactively mitigate losses by identifying the causes at a granular level and recommending corrective actions.

More information on the research findings can be found here.

Dante will also be speaking as a panelist at the ASP Conference: Africa – Promoting Investment and Extending America’s Security on October 2, 2014 in Washington DC.

 

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“The End of Market Discipline? Investor Expectations of Implicit Government Guarantees” by Professor Viral Acharya

Viral Acharya, NYU SternProfessor Viral Acharya and his co-authors, Deniz Anginer of Virginia Tech and the World Bank and A. Joseph Warburton of Syracuse University, find that bondholders of major financial institutions have an expectation that the government will shield them from large financial losses and, as a result, do not accurately price risk. Using bonds traded in the US between 1990 and 2012, they find that bond credit spreads are sensitive to risk for most financial institutions, but not for the largest institutions. This relation between bond spread sensitivity to firm risk and firm size is not seen in non-financial sectors and is robust to non-risk-related reasons for bond spreads being lower for the largest financial institutions. This expectation of government support constitutes a subsidy to large financial institutions, allowing them to borrow at lower rates. They find that recent financial regulations that seek to address too-big-to-fail have not had a significant impact in eliminating expectations of government support.

Read the full paper here.

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Master of Science in Risk Management to Host Module at NYU Abu Dhabi

Abu DhabiThe NYU Stern Master of Science in Risk Management (MSRM) Class of 2015 will travel to NYU’s Abu Dhabi campus for the fourth module of the program. This will be the first MSRM module to take place at NYU Abu Dhabi. The classes will be held at NYU’s brand new Saadiyat campus.

The new campus on Saadiyat Island combines traditional and modern architectural elements to reflect the University’s three identities: Abu Dhabi, New York, and the world. Crucially, the NYU Abu Dhabi campus aims to cultivate a deep engagement with the Abu Dhabi community and, more broadly, the region through academic collaboration.

Moving a module to Abu Dhabi will offer students an opportunity to explore risk management environment in the region by engaging with practitioners and regulators and experience the rich cultural traditions.

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MSRM Class of 2014 Capstone Group Featured on the NYU Stern Homepage!

Boost-Possible_articleHow do you put together a high-powered team, with members from different companies, who have complementary expertise and can blue-sky an innovative plan designed to boost Africa’s emerging economy? A group of seven students in NYU Stern’s Master’s in Risk Management (MSRM) program joined forces to develop the plan for their capstone project.

The group members spanned multiple countries and time zones and averaged about 15 years of multinational work experience in risk management, corporate and investment banking, corporate finance, financial and industry consulting, and compliance: Aliyu Ahmed, a Bank of America assistant vice-president from Nigeria, based in Los Angeles; Eneni Oduwole, a veteran risk management executive from Nigeria; Gerald Mudzamiri, a Zimbabwean working in Toronto and Dubai as an independent consultant in business transformation and risk management; William Adjovu, a Ghanaian native who is currently CEO of the Liberty Group of Companies in Ghana; Omoatama Isenalumhe, a Nigerian operations and compliance manager based in New York; Mokgadi Magoro, a South African treasury analyst responsible for asset and liability management at the Barclays Africa Group in Johannesburg; and Augustine Emeka Uzoh, a Nigerian credit risk manager with Diamond Bank plc in Nigeria.

Aliyu persuaded the team to pursue a project on sovereign wealth funds (SWF) that would work for African countries. Gerald explains, “It was easy for us to believe in this project because we had a common heritage and experience of the African continent. Our confidence in pursuing it despite all odds stemmed from the fact that we had varied and rich careers, work experiences and contacts.”

Read the full article on the Stern website here.

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Video: Professors Viral Acharya and Ingo Walter Discuss the MSRM Program

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MSRM Class of 2015 Opens the Amsterdam Stock Exchange!

The MSRM Class of 2015 opened the Amsterdam Stock exchange at the gong ceremony  this morning during Module 2 of the program.

This was also featured on the Euronext website and the Dutch news website De Telegraaf.

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Understanding the Russian Sanctions by Roy C. Smith and Ingo Walter

Smith-and-Walter_articleThe latest tightening of the US and EU sanctions on Russian business and finance will provide an interesting lesson in international political, economic and military affairs. Here are some key issues to think about:

These Financial Sanctions Can Be Very Potent

They deny Russian access to capital markets in the US and Europe, which is to say global capital markets. Asian markets are not included but they are not significant enough to matter much. This is the most important sanction imposed on Russia so far, since Russian banks and businesses have been obtaining about half of their total funding requirements from these markets over the past three years, according to the FT.

Between them, Russian non-financial state-controlled companies ($41 billion), state banks ($33 billion), private banks ($20 billion) and non-financial private companies ($67 billion) will have $161 billion of foreign debt maturing in the next 12 months. The sanctions prohibit these borrowers from rolling-over this debt.

Read full article as published in Banks and Markets

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