This summer’s credit crisis signals the need for changes in the financial system governor of the Central Bank John Hurley told attendees at a Bloomberg business lunch. The governor, who is to give a key-note speech on the topic at the Sixth Finance Dublin International Securitisation Conference on November 26th and 27th, said that focus is needed on issues such as transparency - including the links between on- and off-balance-sheet vehicles - making improvements to risk management frameworks, valuation standards and market functioning including looking at the role of rating agencies.
His views on the changes needed have been reiterated by a group of the world’s leading bankers, the Institute of International Finance (IIF), which has outlined a five-point blueprint to prevent a recurrence of the problems triggered by defaults in US sub-prime mortgages.
The group says that sweeping reforms are needed to address problems exposed by this summer’s credit crunch and to restore investor trust and confidence.
Joseph Ackermann, chairman of the IIF and Deutsche Bank, said that the IIF is launching a ‘major initiative’ to refine best practice when dealing with the complex structured products that were at the root of the freezing up of credit markets in August.
He announced the launch of a five-point plan on October 21st aimed at:1) improving risk management; 2) reviewing the role of off-balance sheet conduits and special investment vehicles; 3) finding better ways of valuing complex products; 4) looking at the role of credit rating agencies and 5) improving transparency.
He said, ‘It is now clear that a number of structural problems have raised issues that need to be addressed not only but primarily by the financial industry to follow through on the immediate corrective measures that many institutions have already started to implement’.
Although, as Hurley pointed out, the Irish banking system had relatively little direct exposure to many of the original sources of turbulence, he added that it was impacted by some pressure on interest rates, resulting from the tensions in the inter-bank market and some generalised tightening of credit conditions.
Moreover, the credit crisis is continuing to impact on the wider securitisation and structured finance sector in Ireland. The Irish Stock Exchange (ISE) recorded a fall-off in the number of debt vehicles listing in both August and September, as the volume of listings fell by from 34 per cent from July to August, and by 36 per cent from August to September. However, listings are still up by 19 per cent for the first three quarters of 2007, compared with the same period in 2006. |
