We all have heard that one of the big culprits in the credit crisis was the collateralized debt obligation (CDO). CDOs are notes backed by baskets or cohorts of different types of receivables. The notes can be backed by residential mortgages, or commercial mortgages, or student loans, or credit card receivables or auto loans, etc (or a mixture of all the above). It is the cash flows from those receivables, not some end borrower, that services the CDO notes, i.e. pays interest and amortizes the principal on the notes.
I don’t want to go into the details about CDOs here or their role in the credit crisis because many other writers have gone into this exhaustively elsewhere. Suffice to say CDOs (or asset backed financing/securitizations) are actually very important and effective ways of financing certain receivables pools (of effecting what is known as ‘non-recourse’ finance). And yet there were fairly obvious issues with many CDO structures before the crisis: their excessive structural complexity (the notes were broken into too many tranches); the questionable credit quality of the underlying assets; the use of too many different types of underlying receivables; the fact that those rating the notes (the rating agencies) were effectively in bed with the originators of the notes; the overly aggressive selling methods of CDO tranches by swarms of brokers; etc. (read more…)
President Barack Obama traveled to the heart of Silicon Valley on Friday to lay out his vision for improved cybersecurity in a digital age that has seen high-profile cyberattacks make headlines in recent weeks. Joining leaders from various industries at the White House Summit on Cybersecurity and Consumer Protection at Stanford University, Obama stressed the importance of enhancing the public-private partnership already in its infant stages.
“We are just getting started,” Obama explained. “We are only 26 years into this internet age. We’ve only scratched the surface.”
Obama marked the event (scroll down for full video) by signing an executive order that calls for the establishment of industry hubs and a common set of information standards to facilitate greater collaboration in combating cyberthreats. Obama also outlined the four basic principles he sees as paramount to success in the fight against cyberthreats:
- Shared Mission – Government cannot perfect cybersecurity on its own, nor can the private sector.
With an eye on what lies ahead for the industry in 2015, SmartBrief conducted an e-mail interview with Jeffery Weaver, Chairman of the International Association of Credit Portfolio Managers. Mr. Weaver is an Executive Vice President and Group Head of CPM at KeyCorp.
The role of Credit Portfolio Managers in the management of credit exposures has evolved since the end of the Great Recession and one of the most significant changes is the expansion of regulation. How has this heightened regulatory scrutiny changed the role of risk management?
The role of credit portfolio management has become more strategic to the firm as the perpetual assessment of emerging risks and their potential impact on the credit portfolio is under taken.
In order to deliver high quality stable earnings with a sustainable growth profile, risk must be monitored across the organization in a collaborative and transparent manner. The optimally performing bank of today promotes prudent and effective decision making premised on a predefined set of strategic operating principals – while maintaining alignment with a risk management philosophy that has broad support by the firm’s Board of Directors, senior management, and its primary regulators. (read more…)
A collection of stories from SmartBrief publications and around the web…
The editor of The Economist says farewell: John Micklethwait departs The Economist bound for Bloomberg. I won’t even try to summarize his farewell message. It is too good. Read the whole thing.
How the next editor got the job: Gideon Litchfield writes for Quartz about the process The Economist employed to select Zanny Minton Beddoes as the new editor. Litchfield, who was also a candidate for the job, offers unique insight on the refreshingly straightforward way The Economist handled the search.
Food for thought from Davos: With the glitz and glam always stealing the headlines in Davos, many people overlook some of the research the World Economic Forum actually disseminates – during the conference or throughout the year. Kirill Shakhnov from the European University Institute shares some interesting research with this paper: How wealth inequality entices talent into finance. (read more…)