ISDA PRESS REPORT, THURSDAY, SEPTEMBER 7, 2000

* Report Says Banks, Brokerages Need to Advance into Investment - The
Korea Herald, 9/7/00
* OCC Official: Still Hopeful For Derivatives Reform - Capital Markets
Report, 9/6/00
* UK ROAD TO EURO: Little Evidence of Euro-Creep in UK - Dow Jones
International News, 9/7/00
* Banks' Trading Revenue Remains High, Quarterly OCC Derivatives
Report Shows - BNA, 9/7/00

The Korea Herald, 9/7/00
Report Says Banks, Brokerages Need to Advance into Investment

For the survival of the domestic financial industry in global competition,
banks and securities companies need to be pushed to advance into investment
banking, the Korea Securities Research Institute asserted yesterday.

In a seminar on stock market development, the institute presented a paper
calling for expanded participation in investment banking by domestic
financial institutions.

"The global financial industry is heading for a single market as evidenced
by the growing synchronization of financial markets around the world," the
report said. "Since the global financial industry is increasingly reshaped
by mergers and acquisitions and business crossovers, domestic financial
institutions should pursue investment banking." To promote investment
banking in Korea, the institute said measures should be taken to build
reliable databases of economic and financial statistics, foster experts,
encourage brokerages to develop their underwriting capabilities, expand the
concept of securities and encourage business crossovers among financial
institutions.

As promising areas of investment banking, the institute cited asset
management, mergers and acquisitions, asset assessment, trading of
over-the-counter products and derivatives, and securities designing.

According to the institute, the global financial market is experiencing a
transition from direct funding through banks to direct funding through stock
exchanges. This sea change is demolishing the distinction between banks and
securities firms.

Furthermore, it said, capital liberalization in a growing number of
countries is accelerating the integration of national capital markets into a
single global market.

"The pursuit of large size and business crossovers will intensify in the
future. At the same time, progress in financial engineering and information
technology will give rise to more complicated financial products, which will
further liven up indirect investment instruments," it said.

The institute said foreign financial institutions' inroads into the domestic
market would increase, helping domestic institutions improve their business
practices and financial technology.


Capital Markets Report, 9/6/00
OCC Official: Still Hopeful For Derivatives Reform
By Jonathan Nicholson

WASHINGTON -(Dow Jones)- A top banking watchdog on Wednesday held out hope
that laws dealing with derivatives transactions and bankruptcies may yet be
updated this year.

"If nothing happened, it would not be disastrous. There's not a lot of time
left on the calendar," said Mike Brosnan, deputy comptroller for risk
evaluation for the Office of the Comptroller of the Currency.

"It would certainly be a better world if the bankruptcy and insolvency
provisions were finalized. There's a chance that could happen," he said.

Brosnan spoke to reporters during the agency's quarterly briefing on bank
derivatives trading revenues. The second session of the 106th Congress is
expected to adjourn by early October as lawmakers make their way home for
the fall campaign.

Brosnan said he hoped they could get to the provisions in a pending
bankruptcy reform bill dealing with derivatives contracts. The White House
and Congressional Republicans have been bogged down in negotiations over
bankruptcy for some time now. The issues of contention, however, have
revolved around consumer protection.

Brosnan said he hoped the comparatively non-controversial sections regarding
derivatives could be split from the bill and enacted separately if the
bankruptcy bill fails to show progress.

"It is my hope that that would occur and I think it would make for a safer
and sounder banking system," Brosnan said.

More sweeping reform, in the shape of a reauthorization and updating of the
Commodities Exchange Act, is also pending in Congress. The CEA includes the
structural framework for derivatives trading and regulation in the U.S. and
modernizing it has been a priority for some years among regulators and trade
groups.

However, differing versions of CEA modernization have been approved by three
committees in the U.S. House. Such divergent approaches are seen by many as
limiting the chances for passage.

"To the extent you could get one or both of those finalized in an agreeable
format, it would add certainty to U.S. banks," Brosnan said. By increasing
the legal certainty about the enforceability of derivatives contracts, it
would lower costs and keep business from moving overseas, he said.


Dow Jones International News, 9/7/00
UK ROAD TO EURO: Little Evidence of Euro-Creep in UK
By David Cottle

LONDON -(Dow Jones)- When high-profile industrial giants Toyota and Unilever
asked U.K. suppliers to price their goods in euros, many thought more
multinationals in the U.K. would follow suit, possibly making the euro the
effective business currency of the U.K. irrespective of a decision to join.

But so-called 'euro-creep', where the euro becomes the de facto currency for
British companies despite the U.K. retaining the pound, has so far failed to
materialize. U.K.-based businesses are still overwhelmingly loyal to
sterling despite big fluctuations against the euro.

"I think there is disappointment in official, pro-Europe circles that there
hasn't been as much 'euro-creep' as hoped for," said Stephen Lewis, chief
economist at Monument Derivatives in London.

With Britain still undecided over whether it should adopt the euro, many in
the pro-euro lobby say the commercial reality faced by many companies
dealing with other European countries will mean they will end up having to
use the single currency, like it or not.

The issue gathered extra intensity recently when the British press
highlighted the issue.

Euro-creep Overstated

But many now say 'euro-creep' has been overstated.

"The fact is that euro-creep is hardly a factor at the moment," said David
Page, U.K. economist at Investec Research.

What is more, some analysts say that the euro has been almost as invisible
in many euro-zone countries, where local currencies continue to hold sway,
and will remain so at least until euro notes and coins come into circulation
in 2002.

There is an obvious temptation for companies with large operations in the
U.K. and significant sales in Europe to ask U.K. suppliers to invoice in
euros. This way they pass on the exchange risk down the supply chain.

"Most of Toyota's U.K. production goes to Europe," said an analyst at
consultants Business Strategies, "so they'll lose significantly in terms of
the exchange rate and its volatility should their suppliers price in
sterling."

But Business Strategies reckon that these companies are reacting to a strong
pound rather than displaying an undying loyalty for the single currency and
that the weakness of the euro is a factor in its unpopularity as a trading
currency.

Weak Euro Hobbles Acceptance

Others share this view.

"With the euro at current levels it would be odd to see a big push towards
it's use by European businesses," said Klaus Baader, senior international
economist at Lehman Brothers in London.

Of the companies that are using the euro in the U.K., Toyota says it will
only demand euro pricing from some of its new supply contracts.

"We have only asked a few of our new suppliers to tender in euros, and we
have no plans at all to extend that base," said Richard Ayres, a spokesman
for Toyota in the U.K.

Unilever, meanwhile, has invited all its British contractors to tender in
euros, but a spokesman for the company said it wasn't compulsory for them to
do so, nor were there any plans to make it so.

"We now obviously produce all our (financial) reports in euros and this is
just an extension of that," he added.


BNA, 9/7/00
Banks' Trading Revenue Remains High, Quarterly OCC Derivatives Report Shows
By Adam Wasch

Although trading revenue was down from the record $3.84 billion recorded in
the
first quarter of 2000, U.S. commercial banks earned $3.03 billion from
trading
activities in the three months ending June 30, the Office of the Comptroller
of
the Currency reported Sept. 6.

The second quarter of 2000 represented only the third time the banking
industry has earned more than $3 billion from trading activities in a single
quarter. The first time it happened was in the first quarter of 1999, when
commercial banks earned $3.6 billion from trading, according to the OCC,
which released its quarterly Bank Derivatives Report. It has been six and a
half years since the seven banks most active in trading have lost revenue
from trading.

Trading revenue is earned from cash instruments and off-balance sheet
derivative instruments. A derivative is a financial instrument with a value
based on the performance of an underlying asset, interest rate, foreign
exchange rate, or other indexes. The OCC's quarterly report is based on
quarterly call report information provided by domestic commercial banks.

More Banks Using Derivatives

OCC also reported that the number of commercial banks holding derivatives
increased by 27 to 416. The notional amount of derivatives reported by
commercial banks grew 4.5 percent to a record high $39.3 trillion in the
second quarter. Most derivatives trading activity (96 percent), the OCC
explained, is used by banks in their capacity as a dealer to service bank
customers. The remainder is used to manage their own interest rate and other
financial risk positions.

"Contract volumes showed strong growth as bank customers managed risk
positions in an environment characterized by rising interest rates and
volatile and more uncertain market positions," said Mike Brosnan, OCC Deputy
Comptroller for Risk Evaluation, told reporters at a press briefing.

The average credit exposure from derivatives at the top seven trading banks
fell to 247 percent of risk-based capital, OCC said, although Brosnan still
called this a "huge" percentage. Credit exposure has declined since reaching
a record high of 324 percent of risk-based capital in the fourth quarter of
1998. "There were no losses to speak of in the second quarter [of 2000],"
Brosnan said. "The absence of past-dues and charge-offs [produced] a credit
quality of over-the-counter derivatives that is noticeably better" than that
seen in most commercial and industrial loans portfolios, he said.

Most banks use derivatives to hedge credit risk, Brosnan said. The current
economic climate, with its relatively large global swings in interest rates,
gives banks added incentive to use derivatives, he said. Even so, less than
5 percent of banks currently use derivatives. But those that do are heavily
scrutinized because of the highly sophisticated nature of derivatives and
their potential to cost banks billions if deals go awry. "We watch banks'
derivative activity to a disproportionate degree," Brosnan said.

Derivative Bills Pending in Congress

Three separate but similar bills are pending in Congress that would offer
more predictability for derivatives market participants if their transaction
counterparties fail.

The bipartisan provisions, which the OCC supports, provide derivatives
greater legal definition. The relevant language appears in pending
bankruptcy reform legislation, legislation to reform the Commodities
Exchange Act, and in a stand-alone bill (H.R. 1161) introduced by House
Banking Committee Chairman James A. Leach (R-Iowa) and passed by the banking
committee July 27. Such legislation would "add certainty" to the U.S.
derivatives market, Brosnan said, and prevent derivatives trading activity
from migrating to other countries that better legally define derivatives.
"If nothing happens [in Congress], it would not be a disaster, but I hope it
would occur," he said.

Report Confirms Trends

The notional volume of foreign exchange derivatives leveled off in the
second quarter at $6.5 trillion. Continuing a trend, interest rate
derivatives rose to a record $31.4 trillion. Since 1997, when banks first
began reporting data on credit derivatives, the notional volume of these
contracts has increased from $55 billion to $362 billion during the most
recent quarter, according to OCC.

Also, there has been a "pronounced and continued shift" in the kind of
derivatives contracts banks use. Brosnan noted that as the volume of swap
contracts has nearly doubled to $21 trillion since the second half of 1998,
the volume of futures and forwards ($10.3 trillion), and options ($7.7
trillion) has all but leveled off during the same period. Brosnan said that
this was due primarily to bank customers' preference for over-the-counter
derivatives contracts such as swaps, which can be tailored to meet a
customer's specific risk management needs.

Other trends include the increasing popularity of one-to-five year equity
contracts, which rose 27 percent in notional amounts. Equity contracts of
less than a year have also become more popular, OCC said.

The OCC's latest quarterly report is available on the agency's Web site at
http://www.occ.treas.gov/ftp/deriv/dq200.pdf.

End of ISDA Press Report for Thursday, September 7, 2000.

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