Exclusive: Consensus risk data reveals signs of strain in the core plumbing of the financial system
24 June 2021 UK
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Financial counterparties have experienced widespread deterioration, according to the latest Credit Benchmark consensus data.
The data reveals that banks of all types have seen their credit quality decline with the largest shift being in Latin American banks, as seen by a 14:1 ratio showing far more deterioration than improvement.
North American banks and G-SIBs were also negatively affected with ratios of 4:1 each. Last month's worst-performing category, Asia Pacific (APAC) banks, saw the least deterioration this month but the ratio was still tilted towards downgrades at 1.7:1.
However, the data shows that intermediaries performed a little better as the brief respite enjoyed by prime brokers last month is over, with this category's ratio now at 5:1 deteriorating to improving.
Custodians and sub custodians, broker dealers, and central clearing counterparty (CCP) members showed ratios of 3:1, 2.5:1, and 2.1:1, respectively, and this comes on top of previous deterioration. Only CCPs themselves were unchanged this month, according to Credit Benchmark.
Credit Benchmark suggests the buy side shows a mixed picture. Ratios for sovereign wealth funds and insurance firms had ratios of 3:1 and 1.5:1 deteriorating to improving respectively, while pension funds and mutual funds saw more improvement than deterioration and were at a ratio of 0.6:1 each.
David Carruthers, head of research at Credit Benchmark, comments: "The latest update shows a few areas of concern. Consensus risk data show deterioration across all types of banks, especially those in Latin America and G-SIBs.”
“The core plumbing of the financial system also shows signs of strain, with four out of five categories of intermediaries seeing more downgrades than upgrades, led by prime brokers; a group heavily involved in multiple ends of the financial system. This is an area worth keeping an eye on,” Carruthers adds.
Last month, data from Credit Benchmark data found ratios of deteriorations compared to improvements revealed 0 for CCP members,2.6:1 for custodians and sub custodians, and 1:1 for prime brokers.
The data reveals that banks of all types have seen their credit quality decline with the largest shift being in Latin American banks, as seen by a 14:1 ratio showing far more deterioration than improvement.
North American banks and G-SIBs were also negatively affected with ratios of 4:1 each. Last month's worst-performing category, Asia Pacific (APAC) banks, saw the least deterioration this month but the ratio was still tilted towards downgrades at 1.7:1.
However, the data shows that intermediaries performed a little better as the brief respite enjoyed by prime brokers last month is over, with this category's ratio now at 5:1 deteriorating to improving.
Custodians and sub custodians, broker dealers, and central clearing counterparty (CCP) members showed ratios of 3:1, 2.5:1, and 2.1:1, respectively, and this comes on top of previous deterioration. Only CCPs themselves were unchanged this month, according to Credit Benchmark.
Credit Benchmark suggests the buy side shows a mixed picture. Ratios for sovereign wealth funds and insurance firms had ratios of 3:1 and 1.5:1 deteriorating to improving respectively, while pension funds and mutual funds saw more improvement than deterioration and were at a ratio of 0.6:1 each.
David Carruthers, head of research at Credit Benchmark, comments: "The latest update shows a few areas of concern. Consensus risk data show deterioration across all types of banks, especially those in Latin America and G-SIBs.”
“The core plumbing of the financial system also shows signs of strain, with four out of five categories of intermediaries seeing more downgrades than upgrades, led by prime brokers; a group heavily involved in multiple ends of the financial system. This is an area worth keeping an eye on,” Carruthers adds.
Last month, data from Credit Benchmark data found ratios of deteriorations compared to improvements revealed 0 for CCP members,2.6:1 for custodians and sub custodians, and 1:1 for prime brokers.
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