ISDA PRESS REPORT - OCTOBER 19, 2001
 
CREDIT DERIVATIVES
	*	Regulators Seek More Data About Credit Derivatives - Wall
Street Journal

LATIN AMERICA
*	WORLD NEWS: Brazil's weakness set 'for some time' - Financial Times 

OPERATIONS
*	Bank of New York demands back-up links from customers - Financial
Times
 
RISK MANAGEMENT
*	DTCC seeks to address post Sept 11op-risk concerns - Risk News

Regulators Seek More Data About Credit Derivatives
Dow Jones Newswire

WASHINGTON-U.S. bank regulators, saying the notional amount of credit
derivatives at banks has increased more than sixfold since 1997, from $55
billion to $352 billion, are proposing new reporting requirements on credit
derivatives.

The requirements focus on what are known as bank call reports, which banks
file with the federal bank regulatory agencies each quarter; these are used
to monitor the condition and risk profile of reporting banks and the
industry as a whole.

In a joint notice, the Federal Reserve, Office of the Comptroller of the
Currency and Federal Deposit Insurance Corp. said tile new Items proposed to
be added to call reports should result in a "minimal additional reporting
burden" for affected banks.
 
WORLD NEWS: Brazil's weakness set 'for some time'
Financial Times; Oct 19, 2001
By Raymond Colitt in Sao Paulo


Brazil's financial markets have recovered this week, halting at least
temporarily the downward spiral of the Real. But few analysts support the
government's hopes of asustained currency recovery that would allow interest
rates to come down and economic growth to resume. 

With a tighter monetary policy and somewhat brighter short-term prospects
after elections in neighbouring Argentina, the Brazilian portion of the JP
Morgan's EMBI+, emerging markets bond index, has narrowed by 133 basis
points since October 8. 

By mid-week, the Real had recovered to RDollars 2.70, up 4.5 per cent
against the dollar from its post-attack low. Future interest rates also came
down by more than 60 basis points this week. 

The Real had depreciated 30 per cent against the dollar since the beginning
of the year, raising concerns about the country's inflation target and
credit outlook. 

However, the currency weakness "is here to stay", says Marcelo Carvalho,
chief economist with JP Morgan Chase, the investment bank, in Sao Paulo.
"The fundamental problems of the Brazilian economy have not changed and the
market outlook remains uncertain." 

Indeed, a consensus forecast published by the central bank sees the currency
at RDollars 2.80 against the dollar at the end of this year and at RDollars
2.86 by the end of next year. A sustained currency weakness implies higher
inflation and a larger nominal budget deficit, and subsequently slower
economic growth, says Mr Carvalho. JP Morgan Chase foresees GDP growth next
year of only 1 per cent, compared to the market consensus of 2.25 per cent
next year. 

Brazil's principal problem is its dependence on international capital
markets and direct foreign investment to finance a current account deficit
estimated at USDollars 25bn this year, the largest of any emerging market. 

Total external financing requirements are estimated at just under USDollars
50bn next year, a tall order at a time of a global downturn and heightened
risk aversion towards emerging markets. 

Earlier this month, the economic authorities issued more dollar-linked debt,
increased obligatory bank deposits and reformed corporate reporting rules
designed to reduce the need for currency hedging. 

The economic slowdown these measures helped to trigger will help improve the
country's trade balance by driving down imports. As a result, the market
expects the current account deficit to fall from Dollars 25bn this year to
Dollars 21.7bn next year. The domestic slowdown has also helped to dampen
inflationary pressure caused by the currency depreciation. 

On Wednesday, the central bank decided to maintain its prime interest rate
at 19 per cent with a neutral bias. Yet more action to tighten monetary
policy - such as a further increase of bank deposit requirements - may be
necessary given the ongoing threat of an Argentine default, an escalation of
the US-led war on terrorism and political noise ahead of Brazil's
presidential elections next year.
	 
Bank of New York demands back-up links from customers
By Joshua Chaffin in New York

The Bank of New York will require some customers to have back-up
communications links to its securities processing operations, and will more
closely inspect its vendors' technology and communications capabilities to
ensure they function in the event of disaster. 

Thomas Renyi, chief executive, announced the changes on Thursday when
discussing the bank's third quarter earnings, which suffered more than
expected from the September 11 attacks. 

BoNY, which specialises in securities processing, was one of the Wall Street
firms hardest hit by the attacks. More than a month later, it is still
struggling to reconcile trades that clients executed after September 11. 

As a result, its disaster recovery plans have been among the most
scrutinised by the financial services industry as it tries to prepare for
future disasters. 

BoNY executives had contended that much of the disruption was due to damaged
telecommunications lines. 

Mr Renyi reiterated Wall Street's new-found appreciation of "how important
telecommunications are to the smooth operation of the capital markets". 

But he also pointed to problems with computer and communications systems at
BoNY's vendors that may have hindered the bank's recovery. 

"Some of the things just didn't work as billed by our vendors," he said. 

Mr Renyi also said that he and other Wall Street executives would
re-evaluate the practice of out-sourcing large volumes of business to a
small number of companies. 

His comments are notable because BoNY has aggressively promoted itself to
customers as a single provider for all back-office needs, from trade
processing to accounting. 

Overall, losses from the disaster cut BoNY's third-quarter earnings by
one-third from last year's levels to $243m, or 33 cents a share. BoNY
pointed out that excluding the disaster, earnings rose 6 per cent from last
year. 

BoNY recorded a $140m charge related to the disaster. This covers a variety
of expenses, from renting office space in mid-town Manhattan to buying
computers. 
BoNY estimated it lost about $29m in fees from the closure of the markets
and problems with its automatic teller machines, and paid about $45m to
compensate customers for trades that failed or were slow. 

However, it expected that a "substantial amount" would be covered by
insurance.

	 
DTCC seeks to address post Sept 11op-risk concerns 
By Gallagher Polyn

18 October - The Depository Trust & Clearing Corporation (DTCC), the world's
largest clearing company, has seized the initiative to address the issue of
systemic operational risk concerns raised in the aftermath of the US
terrorist attacks of September 11. 

DTCC chairman and chief executive Jill Considine held the first in a series
of discussions with representatives of the Securities Exchange Commission,
the Federal Reserve Board and the Federal Reserve Bank of New York,
yesterday, to address operational risks exposed by the attacks on the World
Trade Center. 

In a speech to the Bond Market Association in New York prior to the meeting,
Considine said the major systemic risk posed by the September 11 attack
stemmed from over-centralisation of physical assets - people and facilities
- related to financial markets in New York. Bond market settlement banks,
the New York telephone carrier Verizon's network in lower Manhattan, and
numerous market makers on the New York Stock Exchange (NYSE) and Nasdaq were
briefly incapacitated by the attack. US fixed-income markets did not resume
trading until September 14, while trading on NYSE and Nasdaq did not resume
until September 17. 

The Bank of New York, a large custodian and securities settlement bank, had
major problems paying out funds due to failed communications lines, with
some market sources indicating that Bank of New York's payments backlog
reached $130 billion on Thursday September 13, leaving a number of large
European institutions with large overdrafts with other banks. 

After a 'breather' from weeks of intensive recovery efforts by US regulatory
authorities subsequent to the attack, Considine said the DTCC would look to
take a leadership role in helping the US financial industry adopt new best
practices to manage the newly exposed risks. 

Comments made by Considine during her speech suggested the DTCC would hold
discussions with regulators, broker-dealers, electronic trading network
service providers, clearing houses, and even public utilities like phone
companies. 

Asked whether new awareness of the risks stemming from spatial concentration
would result in calls to disperse financial market operations over wider
areas, Considine said, "I think people are looking at that very seriously."
But it was unclear whether Considine was referring to regulatory
authorities. Neither the SEC nor the Federal Reserve Bank of New York have
yet issued any new regulations related to the attacks, though impact
assessment is ongoing, spokespersons for the two organisations said. 

The DTCC is the world's largest post-trade infrastructure organisation,
providing clearance, settlement and custody services for equities, corporate
and municipal debt, exchange-traded funds, mutual funds, ADRs, money market
instruments, unit investment trusts and insurance products.



	 
	**End of ISDA Press Report for October 19, 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
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	Email: smarra@isda.org 
	 



Ms. Barbara Hanlon
Database Administrator
International Swaps and Derivatives Association, Inc.
600 Fifth Avenue, 27th Floor
Rockefeller Center
New York, New York 10020-2302
Phone: (212) 332-1200
Fax: (212) 332-1212