Alea

ECB said:

The use of the euro in foreign exchange reserves held by countries outside the euro area, increased moderately by around 1½ percentage points between December 2006 and December 2007 owing to positive valuation effects. When measured at constant exchange rates, the share of the euro in global foreign reserves decreased by almost 1 percentage point over the same period. Recently released IMF data, covering the first quarter of 2008, confirm the trend of a slightly increasing share of the euro when measured in current exchange rates, but a slight fall when a correction is made for valuation effects.

ECB: Review of the international role of the euro

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OCC Deputy Comptroller for Credit and Market Risk Testifies Before Senate Subcommittee on Securities, Insurance, and Investment

It is the OCC’s view that bank derivatives businesses are appropriately concentrated in these large national banks because they have the resources, including risk management expertise and control systems, to control derivatives-related risks in a safe and sound manner.

OCC Supervision of Derivatives

Our supervisory goal is to ensure banks have sound risk governance processes given the nature of their risk-taking activities. At these large banks, resident teams of OCC specialists in capital markets and credit risk, supplemented by PhD economists trained in quantitative finance, engage in evaluations of the suite of risks arising from derivatives activities in general, and also credit derivatives activities specifically.

Central Counterparties and Exchanges

One initiative under consideration by supervisors and industry participants is the development of a central counterparty for the clearing of credit derivatives. This is a concept that would enhance risk mitigation by providing for multilateral netting among the major dealers. A central counterparty could facilitate the management of counterparty credit risk exposures and reduce operational risks across the industry. The central counterparty would manage both counterparty credit and operational risks by truncating the volume of trades among counterparties via a multilateral netting process and by implementing forward-looking margin requirements. Multilateral netting permits long and short positions among multiple counterparties to “net down” to a much smaller volume of open transactions because the central counterparty serves as the seller to every buyer, and the buyer to every seller. With a smaller volume of contracts to be tracked and managed left outstanding, the clearinghouse helps to reduce operational risk.
A clearinghouse model provides a central counterparty and involves ownership guaranty funding and participant margin structure to protect against counterparty credit risk. Given a variety of system, standardization, risk analysis, and pricing issues that may need to be resolved, a clearinghouse might initially have limited application to only index trades and there may be additional challenges that would need to be addressed as it progresses to other credit derivatives products.
Another issue under consideration is an exchange concept for credit derivatives.
It is our understanding that the introduction of an exchange structure to the OTC credit derivatives market would require significant standardization and potentially transform the nature of that market. Given the proven success of the OTC derivatives markets to deliver customized financial products, and current market-based efforts underway to address credit and operational risks, we do not see a need for the OCC to favor one solution over another.

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Almost 50% off from 2001

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U.S. commercial banks generated first quarter 2008 trading revenues in cash and derivative instruments of $1.13 billion, compared to $9.97 billion of trading losses in the fourth quarter of 2007.
Net current credit exposure increased 50% to $465 billion from the fourth quarter, and is 159% higher than a year ago. The rapid increase in credit exposure results from sharply lower interest rates and higher credit spreads, which created a large increase in derivatives receivables.
The notional value of derivatives held by U.S. commercial banks increased $14.7 trillion, or 9 percent, to $180.3 trillion in the first quarter.
Derivative contracts remain concentrated in interest rate products, which comprise 79% of total derivative notional value. The notional value of credit derivative contracts, 99% of which are credit default swaps, increased 4% during the quarter to $16.4 trillion.
Quarterly (Charge-Offs)/Recoveries From Derivatives are dropping.

OCC’s Quarterly Report on Bank Trading and Derivatives Activities First Quarter 2008

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Ambac trading halted in New York after shares slide to $1.04

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Goldman Sachs is blaming the credit crunch.

Tighter credit conditions are forcing leveraged speculators and oil producers with weak credit to close out short positions in crude oil futures, Goldman Sachs said.

Open interest in New York Mercantile Exchange light sweet crude oil futures has been declining since the third quarter of 2007, a phenomenon Goldman says is likely due to the credit squeeze that began to grip global markets at that time.

“The short side of the market has a greater need to cover in response to deleveraging and decreasing credit terms,” wrote a Goldman team led by Giovanni Serio and Jeffery Currie.

Open interest in the NYMEX light sweet crude contract fell to a 15-month low last week at 1.3 million contracts, according to Reuters EcoWin.

The credit crunch may be further skewing the oil market toward the upside by preventing some cash-strapped long players from liquidating positions as many are likely using substantial gains in oil as collateral for other investments, Goldman said.

A similar phenomenon is occurring on the physical side of the market, where weaker oil refiners are being forced to cut inventories due to the high cost of credit, Goldman said.

Independent refiner Tesoro Corp said last week it would cut its inventories by 10 percent in an effort to reduce working capital requirements and cut borrowing.

Tight credit driving shorts out of oil market - GS

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It took a long time but here is the first writedown [not the last...] on the ABX:
SAILT06-4 M-8 – Writedown Amount $12787.282019839 [per million ABX.HE.BBB-.06-2]
ABX Floating Payments

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The Ratings Racket

Auction-rate securities: UBS charged with fraud

Fitch capitulates, withdraws all ratings on MBIA and Ambac

Fact of the day:
All 30 stocks in the DLIA closed down,
98 out of 100 stocks in the S&P100 closed lower,
476 out of 500 S&P500 closed lower.

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It appears that the Delaware LLC holding Bear’s toxic waste will be consolidated on the books of the New York Fed and the estimated fair value of the portfolio, as of June 26, will be released in the Federal Reserve Statistical Release H.4.1. on July 3.

New York Fed Completes Financing Arrangement Related to JPMorgan Chase’s Acquisition of Bear Stearns
NY Fed extends $28.82 bln loan to JPMorgan for Bear

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LIBOR: 2.78
NYFR: 2.78

Add: june 13th
LIBOR: 2.81
NYFR: 2.81

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