Past, Present, and Future of Bank Loans

Transcription

1 Past, Present, and Future of Bank Loans 1

2 Past, Present, & Future: The development of Bank Loans in the Municipal Market 1) Past The Great Recession 2) Present- Direct Purchase Development 3) Future- Regulatory and Trends 4) Questions 2

3 Past: 2008 Great Recession The current financial crisis has exposed the vulnerabilities of the VRDN markets, raising questions about the desirability of its continuation as a significant vehicle for municipal finance Ben Bernanke March 31,

4 Past: 2008 Great Recession Municipal Borrowers historically used Variable Rate Demand Notes and Letter of Credit (LOC) Structures Borrowers transitioned to Direct Placement Debt after the 2008 financial crisis Direct Placement on Bank s balance sheet in order to reduce Market and Bank risk Regulatory burden: (i) Dodd Frank (ii) Basel III Banks develop sweep of products to provide entire banking relationship 4

5 Past: Basel iii Ratios Leverage Ratio = Tier 1 Capital Exposure Measure Why Does This Matter??? Liquidity Coverage Ratio = High Quality Liquid Assets Stressed Net Cash Outflows 5

6 Past: Types of Direct Placement Products 1 Drawn Down Facility 2 Fixed Rate Facility 3 Forward Start Derivative Facility 6

7 Past: Why is this an attractive alternative to traditional bond financing? Lower issuance cost Banks do no require credit ratings Streamlined process Ability to lock in rates in advance of closing 7

8 Past, Present, & Future: The development of Bank Loans in the Municipal Market 1) Past The Great Recession 2) Present- Direct Purchase Development 3) Future- Regulatory and Trends 4) Questions 8

9 Present: Bank Municipal Development Source: The Bond Buyer, Primary Market Statistics (July 6, 2016) and Federal Reserve Fund Flows, Table L.212 (July 6,2016) 9

10 Present: The development of Bank Loans in the Municipal Market MSRB Eases Voluntary Bank Loan Disclosure for Issuers on EMMA Why Market Groups Want MSRB to Abandon Bank Loan Proposal MSRB Asks About Requiring More Munis as HQLA Seen As Too Restrictive MSRB, FINRA Warn Dealers, Muni Advisors About Bank Loans What GFOA Members Need to Know About Bank Loans MSRB to Discuss Bank Loans, Markup Disclosure at Meeting SEC Weighs Providing Legal Guidance on Role of MAs in Bank Loans MSRB to Seek Public Comments On Prevailing Market Price, Bank Loans S&P: Most Bank Loan Terms Don t Hurt Credit Quality, But Some Do Bond Buyer Headlines MSRB Asks About Requiring Munis to Disclose Bank Loan Info From Issuers Assessing the Less Contemplated Risks of Bank Placement Agreements Behind the Market s Divide on Bank Loan Reporting How the SEC Could Help With Issuer Bank Loan Disclosure Voluntary Disclosure on Direct Loans Seen as Falling Short 10

11 Present: MSRB: The Municipal Securities Rulemaking Board Created in 1975 Goal is to promote fairness, transparency and efficiency of the municipal securities market Disclosure Voluntary Disclosure via EMMA Electronic Municipal Market Access Municipal disclosure requirements does not apply to Banks SEC Rule 15c2-12 The undisclosed terms within a bank agreement may put bond holders on a subordinate position 11

12 Present: Loan vs Security What is a Security - FASB Topic 320 defines a security as: A share, participation, or other interest in property or in an enterprise of the issuer or an obligation that: (a) either is represented by an instrument issued in bearer or registered form or, if not represented by an instrument, is registered in books maintained to record transfers by or on behalf of the issuer, (b) is of a type commonly dealt in on securities exchanges or markets or, when represented by an instrument, is commonly recognized in any area in which it is issued or dealt in as a medium for investment, and (c) either is one of a class or series or by its terms is divisible into a class or series of shares, participations, interests, or obligations. 12

13 Past, Present, & Future: The development of Bank Loans in the Municipal Market 1) Past The Great Recession 2) Present- Direct Purchase Development 3) Future- Regulatory and Trends 4) Questions 13

14 Future: A Lack of Transparency Results in Distrust and a Deep Sense of Insecurity 14

15 Future: 15

16 Past, Present, & Future: The development of Bank Loans in the Municipal Market 1) Past The Great Recession 2) Present- Direct Purchase Development 3) Future- Regulatory and Trends 4) Questions 16

17 Contact Information Marcus Castro East Region Government, Institutions, and Healthcare BBVA Compass (205)