The German financial stability review has lots of other interesting charts. Here are the ones I found the most compelling. A thread to wake you up on a lazy black Friday.
This is the equivalent of the ECB inflation spider chart... but for corporate insolvencies. Buba keeps predicting they'll spike.. but it just does not happen. Tbh this is seriously mysterious and somehow worrying.
And you can't blame Buba for those forecasts because we're really in extremely weird times. Here's how previous crises have looked like in terms of GDP/insolvencies.
This 2020 crisis totally inverts the GDP/insolvency regression line and makes it a >0 slope
🤪
And Buba is not alone in those forecasts: here's how German banks view the probabilities of defaults on their loan books : sharply going up... and yet, still no genuine defaults.
Interestingly, this rise in probabilities of defaults is entirely driven by corporate loans, because the view on real estate lending (residential AND commercial, which is more surprising) is still a blue sky scenario : PDs keep going down.
Going back to the earlier topic of rates, Buba has a nice chart about rising rates and the level of danger for insurers: at what point would they face such MtM losses that they would not be able to honour guarantees on policies?
Still plenty of room, but 3% is not a high rate!
A fun chart, even if we're clearly in #chartcrime territory: working from home will increase cyber risk. Not a big surprise but nice to have some numbers (even if the regression is crap)
Now maybe to their most controversial chart. Buba has done a climate stress test. NOOO NOT ANOTHER ONE, I can hear you say. But this one is different.
Here's the "asset base" and the outcome: a nothing burger. max 10bps of credit risk, which is not really different from 0.
Buba even "priced" the uncertainty around this & they're pretty confident climate risk is indeed a nothing burger for banks : 12bps is the max.
This is really a very different take from all the doomsday scenarios we're seeing here and there to justify climate action from the banks. That's why it's going to be controversial.
If you read me often, you know I have sympathy for that approach because ...
...I also believe the risk for banks is grossly overstated and it's basically a supervisory trick to have banks on board with the climate transition.
But I think we should be honest, admit the risk for banks is minimal, and still convince them that they must do the right thing!
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What's going to be the costs of the Crowdstrike outage for the insurance industry? Impossible to know precisely but Mediobanca has a nice breakdown explaining why it won't be massive.
There are 3 areas of losses:
- cancelled flights
- Business interruption
- Cyber policies
1/n
Cancelled flights: reports are approx 5000 flights cancelled per day, still ongoing (backlog). That's big but 2010 Icelandic volcano had 100k cancelations ut MunRe explained the insured losses were low munichre.com/en/company/med…
BI for a week is not big. For example Swiss Re paid 1.5bn for the entire Covid lockdown. This is not even remotely the same
Thoughts about what's next in France + some important budget geekery in the middle. A long thread.
There is obviously no party capable of governing, But the two most important figures for me are approx
- RN + LFI = 214, 256 if we add EELV and PCF
- LR + PS + ENS = 131+162=293
In practice, this means that there is no “immediate” majority for votes of no confidence LFI + RN and that it will take the vote of one bit of the three “moderates” to pass one. The governement will not be that unstable.
There are also important rules to keep in mind:
- The president chooses the PM but he cannot decide policy for him
- The assembly does not vote on the choice of the PM – it can just dismiss him by vote of no confidence. Even if this vote succeeds, nothing prevents the president from choosing the same PM!
Allegedly one of those hedge funds was called Segantii.
Maybe you’ve heard of them: they’re shutting down and returning all investor money after Hong Kong authorities announced a criminal insider trading probe against them for trading ahead of a …. block trade! Surprise!
If you're following French politics, you'll probably hear about a weird theory soon, as it's likely to go mainstream: Macron could resign, call for new presidential elections and run again, effectively bypassing the 2-term limit.
Is it credible? I don't think so and here's why.
The Constitution bans more than two consecutive terms.
Everyone pretty straightforwardly understands this as "Macron can't run again in 2027" (but could pull a Putin & come back in 2032.)
However the exact wording mentions "mandats consécutifs" which, some suggest, implies that if someone is a temporary president after Macron resigns (even for a few weeks) then a 3rd Macron term wouldn't be "consecutive."
By now you've probably read 10 times that Macron called parliamentary elections to put RN/Le Pen in power & wait for them to mess up so much that Macron's heir will win in 2027.
I think that's a possible scenario but not his goal at all. It misses Macron's real target.
1.- The main negative for Le Pen is that she (&her father) have always been seen as incapable of governing. They’re a protest party, nothing more. Break that taboo and you could actually help them.
2. A majority for Le Pen not certain. They've got 88 MPs, majority is 289. They scored 19% at last parliamentary elections vs 33% yesterday but were at 23% previous European elections. The two-round system makes the votes/ seats relationship highly non linear. Forecast is v hard.
An “ECB” working paper (so in theory just academic work, but, errr.) published 2 days ago discussed capital buffers for climate risks. T
he basic idea makes sense: an increased pace in energy transition is good for the climate but could hurt the credit profile of some companies.
How is this assessed?
The ECB has built a macro model that’s mostly based on energy prices, spillovers & leverage / profitability that ultimately leads to probabilities of default. A neat model but tbh I’m always dubious – unfortunately macro models can’t even forecast 6mo infla