ISDA PRESS REPORT - NOVEMBER 12, 2001

CREDIT DERIVATIVES
	*	ISDA Publishes Credit Publishes Credit Derivatives
Convertibles Supplement - ISDA Press Release
	*	ISDA Debuts Credit Derivatives Number At $631.5 Billion In
OTC Market Survey - ISDA Press Release
	*	ISDA reports growth in credit protection - Financial News
	*	Supranational Studies First Use Of Credit Derivatives -
Derivatives Week

RISK MANAGEMENT
	*	Basle study suggests changes to the Accord - IFR

ISDA Publishes Credit Publishes Credit Derivatives Convertibles Supplement
ISDA Press Release - November 9, 2001
<http://www.isda.org/whatsnew/index.html>

NEW YORK, Friday, November 9, 2001 - The International Swaps and Derivatives
Association announced today that it has finalized and published the
Supplement Relating to Convertible, Exchangeable or Accreting Obligations.
The Supplement and Commentary can be accessed under the What's New section
of the ISDA's web site. 

The Convertibles Supplement addresses the treatment under the 1999 ISDA
Credit Derivatives Definition of certain types of convertible and
exchangeable obligations, as well as the treatment of accreting obligations,
such as zero-coupon bonds, low coupon bonds issued at a discount and
non-discounted bonds that accrete during their term.  "The Convertibles
Supplement represents the consensus of a diverse range of constituents in
the credit derivatives markets, including portfolio managers, credit
protection sellers and dealers," said Robert G. Pickel, Executive Director
and CEO of ISDA.


ISDA Debuts Credit Derivatives Number at $631.5 billion in OTC Market Survey
ISDA Press Release - November 9, 2001
<http://www.isda.org/whatsnew/index.html>

NEW YORK, Friday, November 9, 2001 - The International Swaps and Derivatives
Association (ISDA) announced today that the global notional outstanding
volume of credit derivatives transactions was $631.497 billion for the first
half of 2001. While still modest in relation to interest rate products, this
figure is expected to remain on a strong upward trend compared to more
mature derivative product areas.

Polling member firms for the first time on credit derivatives transactions,
ISDA surveyed total notional outstanding volumes for single name credit
default swaps, default swaps on baskets of up to ten credits, and portfolio
transactions of ten credits and more. 83 ISDA member firms supplied data on
these products. Interest rate and currency derivatives growth was 3.573% in
the first half of the year among members that also reported to ISDA at
year-end 2000. For these firms, total notional outstanding volumes increased
from $53.267 trillion to $55.170 trillion. Total notional principle of
interest rate swaps, interest rate options and currency swaps for all
surveyed firms dipped to $57.305 trillion from $63.009 trillion last year.
Among top ten dealers, there was also a minor decrease in volume from
$35.648 trillion to $35.532 trillion.

"Shifting product use is a reflection of a more uncertain global market
environment," said Thomas K. Montag, Vice-Chairman of ISDA and Chair of the
Association's Market Survey Committee. "The market for credit protection has
an obvious appeal during times of economic downturn," said Mr Montag, a
Managing Director of Global Interest Rate Products and Asia FICC, and
Co-President of Goldman Sachs (Japan), Ltd.

The survey, which is compiled twice yearly by Andersen LLP, is performed on
a confidential basis. It is complemented by the more comprehensive survey
produced quarterly by the Bank for International Settlements. Of the 83
member institutions providing outstanding notional volumes figures in the
ISDA interest rate and currency derivatives survey, 67 were participants in
the previous semi-annual survey.


Isda reports growth in credit protection
Financial News - November 12, 2001
Available upon request - smarra@isda.org <mailto:smarra@isda.org>


Supranational Studies First Use Of Credit Derivatives 
Derivatives Week - November 12, 2001

The European Investment Bank, a multinational lender with a EUR215 billion
(USD192 billion) loan portfolio, is considering using credit derivatives for
the first time as a means of hedging its credit risks next year. Officials
at the EIB in Luxembourg said the lender is currently conducting an internal
review on the credit derivatives market and is weighing whether it makes
sense to use products such as single-name default swaps to mitigate risk.
"Credit [derivatives] would be a completely new field for us," said Luis
Pacheco, an official in the credit-risk department in Luxembourg, noting the
bank has used foreign exchange swaps in the past on the back of its bond
offerings but has not used any derivatives on its loan portfolio. 

The lender hands out EUR36 billion per year, EUR30 billion of which is
within the European Union, to highly rated banks and corporates. Two-thirds
of the loans go to highly-rated banks with credit ratings in the A range
with maturities of 15-25 years, which then loan money to small and
medium-sized enterprises. The remaining third goes to corporates across the
credit spectrum in five to 15-year tenors. 

Pacheco said the EIB will accept default swaps in place of bank guarantees,
which it now requires as a means of hedging risk on the bulk of its
long-term lending, if the market is deemed liquid enough. Officials were
unable to quantify potential usage of credit derivatives given the early
stage of the discussions. 

Credit derivatives pros were excited to hear of the EIB's discussions. "It's
just a matter of time until the credit derivatives market becomes more like
the interest-rate swaps market and what we're seeing now is the initial
phase," said one trader, adding, "I'm not surprised." 

Pacheco and other EIB officials said the reason behind the review is because
the default swap market is more liquid and as a result may offer more
attractive pricing for debtors. "The advantage is the portfolio approach,"
commented one official. The EIB has considered using credit derivatives in
the past, although it found "the market was not developed enough and so we
were not interested," said Pacheco. The supranational is analyzing the
market now to see if that has changed in terms of liquidity and critical
mass in the last year as is expected. "Now we want to see the new situation
of the market and to see if we can use it in our business," he said. He
declined comment on potential counterparties. 


Basle study suggests changes to the Accord
IFR - November 10, 2001

Banks could face higher capital charges under Basle II's internal ratings
based (IRB) foundation approach to credit risk reserving than its more
advanced, standardised approach.

Contrary to the Baste Committee on Banking Supervision's desired results,
the IRB foundation approach's minimum capital requirements would be 14%
higher among large G-1O banks, the regulators' quantitative impact study
(QIS) found.

Under the standardised approach, these banks would see their requirements
increase 6% on average. An average change of - 5% was reached when banks
were asked to calibrate credit risk using the IRB advanced approach laid out
in the Committee's January proposal, according to the QIS released last
week.

To address the fact that the approach slated as the less intensive yielded
higher charges, and to understand better the impact that the January
proposal would have on small and medium-sized enterprises (SMEs), the
Committee is conducting a follow-on impact study.

The January proposal's corporate and retail risk weight curves and its
method for recognition of physical collateral and receivables may be
modified as a result of this study, the regulator said last week. The
January draft was not balanced because it was biased towards the views of
large banks engaged in large corporate lending activities, noted one
industry official.

The corporate risk weight curve under the new QIS is likely to reduce the
capital requirements for many SME borrowers relative to the January
proposal, the Committee said. Additional work is also under way aimed at
assessing the probable impact of applying separate risk weight curves for
residential mortgage exposures and for other retail exposures. Under the
Committee's January proposal, the IRB approach treated all retail exposures
using the same risk weight curve.

The impact of assuming a 45% loss-given default (LGD) for loans fully
secured by non-property physical collateral and a 40% LCD for loans fully
secured by receivables will be examined in the new QIS.  "Under the January
proposal banks with the foundation approach have no incentive to use most
forms of collateral," said Marc Intrater, managing director at Oliver, Wyman
in New York.

Other than commercial and residential property collateral, the January
proposal did not recognise physical collateral or trade receivables as
collateral. As such, loans fully secured by either received a 50% LGD. Banks
that use collateral for their secured lending and do it well generally
experience a reduction in credit risk. The Committee's decision to undertake
a follow-up impact exercise is widely viewed as revisionist, say market
participants. Similar moves earlier this year appear poised to result in
changes to the January proposal, they note.

"There is a lot of waiting until the final accord. But most banks realise
that even though the accord does not come into effect until 2005, getting
ready for it requires a lot of lead time," said Intrater. The Baste
Committee plans to release a final version of its proposed accord in
February.

**End of ISDA Press Report for November 12, 2001**

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Scott Marra 
Administrator for Policy and Media Relations
International Swaps and Derivatives Association 
600 Fifth Avenue 
Rockefeller Center - 27th floor 
New York, NY 10020 
Phone: (212) 332-2578 
Fax: (212) 332-1212 
Email: smarra@isda.org