![]() The number of new structured products sold via UK independent financial advisers is up 60 percent from its 2007 levels, and notes that put investor capital at risk have gained prominence, according to data from, a site that tracks the industry. The impact of these moves was to lower bond yields and push fund managers to higher-yielding securities, including structured products, to improve their performance. mortgages triggered the global financial crisis, leading central banks to cut rates and launch stimulus measures. ![]() This is 50 percent more than they had six years earlier, when a crash in structured products based on subprime U.S. These figures also include the value of instruments used to hedge risk. He added that as long as banks’ retail and investment businesses were not separated, depositors’ money and economically important lenders remained exposed to losses made through risky derivative bets.Įuropean banks had more than $6 trillion worth of derivatives, the key ingredient in structured products, on their balance sheets in March, OECD data showed. ![]() “Again, the taxpayer will have to bail out these institutions.” “By setting up this central clearing party, we are setting up the mother of all too-big-to fail institutions,” Blundell-Wignall said. For example, they want OTC derivatives trades to be processed by a central clearing house backed by collateral from market participants, in a bid to isolate the impact of failure by an institution.Ī deadline to put these rules in place by 2012 was missed and the process is expected to drag on into 2014.īut critics say these rules merely shift risk from banks to a central clearing institution that would still need a public rescue if the banks that back it run into trouble. The notional value of the global OTC market has been roughly steady throughout the crisis and stood at $633 trillion at the end of 2012, according to data from the Bank for International Settlements, a sum with more than enough potential to destabilise the global financial system.Įuropean regulators have been trying to improve safety in derivatives since the crisis. “When the next volatility bout comes around, with the turn in interest rates, then all it takes is for one bank to go down, and suddenly you’re back in a crisis again,” said Adrian Blundell-Wignall, deputy director of the Organisation for Economic Co-operation and Development’s (OECD) directorate for financial and enterprise affairs. They also expose their owners to the risk of default by the bank that creates them, unlike shares and bonds.įor these reasons, investors who buy structured products and the banks that issue them will be vulnerable to the volatility that could emerge when central banks eventually unwind their ultra-loose policies. They are typically deals struck directly by a bank and an investor “over the counter” (OTC), not via an exchange, and their bespoke nature and complex terms mean they are much harder to offload than a stock, bond or unit in an exchange traded fund (ETF) if they start making losses. mortgages, but these products still present risks. Popular structured products are chiefly based on shares, corporate debt or government bonds, making them more transparent than those that triggered the 2008 crisis, which wrapped up poor-quality U.S. His clients have been making leveraged three-month bets on some Swiss blue-chip stocks via structured products that offer limited protection on the capital invested. “Volume in structured products has been high and has picked up, notably since the beginning of the year.” “The low interest rate environment is pushing clients to search for yield,” said Sébastien Gyger, head of portfolio management for private clients at Lombard Odier.
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