YouSaid · the spoken record

Beth

lines on the record: 30
first: 2018-10-29
most recent: 2018-10-29
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“It's been an exciting year, both in terms of my transition to treasury and in terms of hitting the 25 year milestone. It's something that obviously we pride pretty significantly Goldman Sachs in our quarter century club, and so I was excited to hit that milestone and to be a part of it. But I've seen a lot of different transitions at the firm started in 93, and at that time Lloyd was the desk head. And I interviewed with him before I moved into our derivatives businesses. And so there have been a lot of senior people that I've seen grown up. next transition. One of the things that I will say that's been the constant throughout my 25 years has been that change and that collegiality and that continuing to raise and develop talent over time. It's hard to surprise me with things, but the team was actually able to surprise me with the 25-year celebration on the desk. But like all things at Goldman Sachs, you're right back to work and lots of new challenges ahead to get through.”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT
“You have a reasonably new job, a big job as the company's treasurer. Talk a little bit about what that means to you, the 25 years you've spent here and some of the surprises about how your career has evolved at the firm.”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT
“Our investment banking franchise, making sure that we're really out there talking and engaging with clients as they have varying levels of understanding, education, exposures to these different rates, and really supporting them and walking with them side by side as they go through what can be quite frankly a scary transition for some of them given the pervasiveness.”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT
“We're doing a few different things. We just talked about a moment ago, the big industry initiatives, market developments, developments of new products, et cetera. So we're clearly have a big focus on making sure that we're participating in those conversations, leading from the front with respect to developing them, making sure that they fit in the spectrum of all the different financial instruments and things that are important to our clients. Then there's also the bottoms up stuff that Beth talked about a moment ago in relation to system readiness, model calculations, making sure that we have full understanding of how the blocks connect together and making sure that all of our models and technology, et cetera, can accommodate all the new rates and migrate over. On the other side, we're engaging with our clients, whether it be through our private wealth management area, whether it be through our securities division, sales and trading group, whether it be through our”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT
“Who's traded in and around the front end before has passion for this understands the implications it's gonna have on the market, on our clients, on our businesses we thought was really critical to make sure that we could do this in a world class way.”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT
“We started out the process at the beginning of the year looking at this, looking forward, being involved in a lot of these processes that Jason talked about, and thinking that we could pull this together through our usual coordinated collaborative Goldman Sachs style. But as we started to dig into it and really go through, we just found this is a much, much bigger scale problem than we've seen before, and we really need the accountability and the coordination to make sure that we have one person driving this effort for the firm, for our clients, to help be a port of call for people who have questions, who have concerns, to make sure that we've got consistent messaging, consistent answers. There are questions that will come in from whether it's clients or regulators with two, three pages lists of different nits that they want to know what's going on in LIBOR space. And those will come in through our classic sales and trading organization. They'll come in through our investment management division. But if one person tries to answer that on their own, they're not going to have the full resources and the full scope or breadth of knowledge that we're pulling together. And so getting Jason someone who has been in these markets.”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT
“There's some smaller scale things that we need to happen as well, some of which are just system builds. We have a lot of trading systems both internally, market platforms, that don't know how to handle or process trades that have these daily resets. So some of that work needs to be done. Risk models across the street are highly based off of LIBOR. People are going to have to start migrating away from that as well. So Jason talked about a lot of the really big picture things that we're looking for from a headline perspective, a regulatory perspective, but there's a lot of granular work that's going to need to be done firm by firm to get this implemented.”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT
“Us very much following the activity in the market. So for futures, which the CME has rolled out, has somewhere in the neighborhood thirty thousand outstanding contracts and so forth, and so for futures, we're looking for that number to grow at some continued very substantial exponential parabolic pace to see if there's growth that the market is really underlying it. So we're waiting for FASB, the accounting standards board, to release their guidance on how they're going to handle the new rates so far, et cetera, to make sure that they're appropriate for hedge accounting treatment, which is very important to many of our corporate clients and others who use a lot of these rates to hedge different types of risks in the market. And then I just mentioned what's happening with the UK regulators. There's going to be a rollout of significant plans there which should spur activity and issuance and other things. And so those are some of the landmarks that we're watching to see if there's meaningful growth in these new rates.”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT
“Quite frankly. And I think part of it is their market was a little bit more developed, as I indicated about Sonya. But if you think about the entities that they're talking to there, they're very heavily involved in U.S. dollar transactions, very heavily involved in euro transactions, et cetera. And so this is going to be a very telling time from now until the end of the year as people prepare for the European regulators and then it'll be interesting to see what kind of momentum that gets for more issuance, more volume, more activity, more movement to some of the new rates given regulators are clearly very focused on it with the UK regulators leading that charge.”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT
“Been identified and supported by the industry and the Bank of Japan there. Obviously, there's some different challenges in Japan, given the nature of monetary policy and some things that have gone on there, but at least they have identified a rate and starting to move. I think this is a good time to point out that regulators have two choices here. They can apply the carrot approach or the stick approach. And in many central bank discussions and industry discussions, people have been talked about the carrot approach. Should we allow favorable netting treatment for the new transactions or make it very friendly for the new transactions to be born into the market? But the first big move came in the UK and they sent a dear CEO letter out to all banks and insurance companies mandating a board-approved transition plan before Christmas of this year, so tight turnaround and very strong language to making sure people are prepared.”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT
“But the one thing about it is they're not expecting to publish it until next fall. And so whereas we already have robust markets in the other rates, the Europeans aren't even in a place where they're publishing their replacement rate. And more so, they have specific legislative benchmark regime in Europe that from January 2020, which is only 15 months away, the historical rates actually don't even comply. So they need a new rate and they need to get it up and going quickly and it's going to be a really tight window. And then in Switzerland, they've identified their rate. That's obviously a smaller market relative to the markets that we're talking about. But the Swiss National Bank is moving forward and there's activity there. And then going out Far East, Japan has identified their rate. There's a lot of consolidation that's going to happen in their market. There's three or four rates that currently operate in Japan. Folks are going to migrate towards the one that's...”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT
“They probably have one of the more robust markets of these rates, the Sonya market is pretty well established over a much longer part of the curve than the US. There's already some volume of activity going there. There's obviously transition that needs to happen, but at least there's a little bit more depth of the market. Then we go to Europe, and that's the part of the world that is on the thinnest part of the ice. They just last week announced their replacement rate. Esther, the European short-term rate,”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT
“There's different speeds in different places, which is also one of things that we're all reconciling. So start here in the US, we've identified the rate, we're starting to see transactions in the rate, there's future contracts, we're starting to have some liquidity and activity, at least in the first twelve to eighteen months part of the market. We're starting to see issuers come to market, as I indicated, we've seen around the first 10 billion specifically in the US dollar market, referencing sofar. So we have the rate, we have contracts, we have things trading. So now let's hop over the pond. The Sonya market, that's the rate.”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT
“Think the secured versus unsecured, frankly, is less of a problem for the industry than the credit sensitive, not credit sensitive part of it. Insecured versus unsecured just means that there's theoretically collateral behind it when we're talking about the secured rate. We're talking about governments. And so, again, it is more of a risk-free rate that you're looking at. I think it has more to do with that credit component than secured versus unsecured. In many of the other jurisdictions, they've chosen unsecured rates, but those unsecured rates are more at a risk-free type level, so Sonia in the UK, where you'd think about that as being more linked to government type collateral rather than bank sensitive collateral.”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT
“And I would just add that I think partly because of some of the regulatory changes that have happened, the fact that the Fed has pushed banks to fund themselves for longer to not use the short-dated markets, you just won't have the same volume going through. It's a fundamental market structure change. You won't have that same volume in the credit part of the market that you used to have, and so it may not be possible to find a credit sensitive rate that we can use for the near term.”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT
“So Jake, what's interesting is people always viewed LIBOR historically as the risk-free rate. And then the crisis happened and it exhibited a lot of risk as it widened or blew out relative to other benchmark rates, as Beth just indicated. And so part of what happened is that was an eye-opening experience. So I think one of the good outcomes of what's happened here is the central banks and the industry have put forward what I would argue are true or much, much closer to true risk-free or near risk-free rates. We were talking about people being on board, none of this. There's a community of folks who want something with the credit sensitivity, and that's where the square peg in the round hole for the market is right now. We have identified fair, good, robust, heavy volumed, near risk free or risk-free rates, yet the market still wants some type of credit experience because a lot of people have lived through the crisis and they want that match that Beth just indicated. And so that's one of the real”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT
“They had a match. Sofer won't have that. The other reference rates globally, Jason can talk about some of them, are also more geared towards the risk-free government type rates rather than this credit sensitivity. So that's an issue that banks are going to have to work through.”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT
“It was very sensitive. And so, what you saw was the other rate that had been really popular is the federal funds rate, which is the target rate used by the Federal Reserve when they look at setting monetary policy and when they try to control rates at the front end of the market. But through the crisis, you actually saw that Fed funds LIBOR basis, which had traded pretty consistently in the low double digits, call it 10, 15, 20 basis points, move out to north of 100 basis points through 2008. So there was real credit sensitivity. Now that was a benefit to banks for some perspective because they had loans that they'd made that were linked to LIBOR and so as their funding costs widened as it became more expensive for them to raise money, they were getting that back on the assets that they had on the other side.”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT
“Transaction volume that's going through about 300 million sofa has 800 billion, but contracts linked to LIBOR are earned the hundreds of trillions. So each of these is growing in size, but it'll give us a bit more liquidity to look at.”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT
“So, as we talked about before, one of the core issues with LIBOR is that it is a credit sensitive rate. A lot of the new rates that we're talking about and looking at in the marketplace are risk-free rates that don't have that same level of credit sensitivity. So in the US, the secured overnight financing rates sofer is what it's being called. That's the likely successor for LIBOR. And so it's similar in that it's a short end rate, it'll float over time, but it's going to be an overnight rate. LIBOR, as Jason had mentioned, was really the most liquid at the three-month point, and it was a prospective three-month credit sensitive rate so far is a little bit different in that it's a secured rather than unsecured, risk-free, it's based on treasury collateral, and it's an overnight rate. And so there are going to be some hiccups and some nuances as we move through and look at those changes as we move forward. One of the other key differences, and one of the primary reasons why sulfur was picked as a replacement rate for the US, is that it's an $800 billion market in terms of transactions every day. So again, let's compare LIBOR, the overnight.”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT
“where we are now to be, where we would be in the first quarter of next year. And so we're seeing development in market, lots of education, there's fluency in a lot more places to talk about it than we were expecting. So actually, quite frankly, it has a lot of momentum and people are really talking about it.”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT
“I don't know if it's that they're not on board, but there's still a broad education phase that's going on. Clearly, when the central banks convene folks, they started with the major banks, now they've expanded to major pensions, major users, the exchanges, the CCPs, kind of the usual suspects of folks that would use these types of products or be engaged in this at the highest level. But this spans all the way down to the consumer in many cases when you talk about credit cards or car loans or people's mortgage on their house, et cetera. So it's going to be a process to get from the greatest outstanding impact down to all of the folks that are touching it. Right now, it's a meaningful move through the education process. And for me, I would actually say we're a lot further along than I would have said we would be six months ago when we started really in earnest looking at this as an organization at the beginning of this year. We probably”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT
“It's nothing short of enormous for a lot of people. As Beth indicated, it's not just ubiquitous in markets, but it's foundational for how a lot of other things are built on. So you have this alternative rates committee has identified globally that the replacement rates around the world are slowly moving through understanding documentation, understanding amount of inventory of outstanding trades. There's industry groups that are born around the globe by all the central banks to identify all the different aspects of the market. So right now I would say that we're in like an inventorying phase of understanding where everything”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT
“Or hooked to LIBOR. First and foremost, I think the impact is going to be hopefully an improvement in safety and soundness. As Jason talked about, we have an enormous market that's referencing a very small market. And that puts some instability and some potential risks in terms of how that underlying market could move and have unanticipated consequences for the rest of the marketplace. So earlier this year, we saw LIBOR widen pretty significantly relative to other reference rates. But again, there wasn't a lot of fundamental activity that was driving it, and it's one of these curiosities of the market as it goes through. That said, it's going to be a really painful transition to get there because there are so many people and so many products that are referencing this rate. It is such a foundational part of our markets. And markets are really creatures of habit. People like to be engaged and involved in things that have a lot of liquidity that makes them feel like their transaction costs are lower, the transparency is better, even if the underlying nuances of that rate may not be as robust as they want it to be. They still feel there's a lot of”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT
“You know, it's actually quite interesting because the way LIBOR is calculated is a group of panel banks would answer a question each morning, its range between sixteen and twenty panel banks over time as banks have come and gone. They would answer the question at what rate they would lend money to one another. Then originally the British Banking Association and later and more currently the ICE benchmark administration would take those different rates, trim the outliers, and publish the mean each day just before noon in the UK, and that would be the LIBOR rate. Those calculations were done largely on expert judgment. They were never really based on, historically, never really based on true market transactions. And one of the things that's very important here in the movement to a lot of these new rates and the development of alternative benchmarks is to migrate to rates that”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT
“Just call it the ark. Yeah, very similar to Noah's. So what it was, it was 15 of the major swaps dealers in the derivatives markets because the derivatives were the bulk of those transactions. I referenced something in the neighborhood of 200 trillion in the US. Call it 95% of the exposure can be in the derivatives markets. And the arc was really charged with a few things. One identifying an alternative to LIBOR. Two, what the viable plans for rolling that alternative out. And then three, getting the world comfortable with the language to transition, so documentation language about going from old to new in the event that there was a cessation or an end of the publication of LIBOR, which quite frankly seems like a more and more real event given the indications that regulators have made and specifically the regulator of LIBOR, which is the FCA in London.”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so the regulators came up with a few different things. One is they came up with principles about the best ways to have benchmarks, which is robust underlying activity. And then here specifically in the US, the Fed convened a group called the Alternative Rates Reference Committee or the ARC.”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT
“We have something like two hundred trillion of global assets that reset off that rate, whereas now we're down to about three hundred to maybe five hundred million of actual daily activity in three month bank to bank loans. So you have 200 trillion of assets resetting off 300 million of activity. Feels like the world has shifted very, very meaningfully.”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT
“So there's a real big structural shift in the market over time, as Beth indicated there are all these tenors and interbanks, had a lot of activity lending to each other, but that as we went through the crisis and as QE became a bigger and bigger part of policy, the market of interbank lending in very short tenors actually started to dissipate and become quite scarce. And so that the volume of activity went down significantly. At the same time, the derivatives markets and other markets that you reference the mortgage markets and the CLO markets experienced tremendous growth over the last 10, 20 years. And so you had this balance where tons and tons, or in this case hundreds of trillions of assets were referencing this LIBOR rate and resetting off it, where the activity that was the underlier that would establish the rate actually went down. So to put it in context, for three-month LIBOR, which is kind of the most ubiquitous.”
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“Library is a rate that's been around for a very long time, estimated at about 150 years that it's actually been in existence. But it really came to drive the markets about 30, 40 years ago in the 80s when derivatives became very popular. People were looking for a rate that symbolized the front end of the market, that was a floating rate they could use. And as you talked about, it became heavily used in derivatives as well as mortgages, consumer loans, and other products. It's a global rate in that it is attached to a specific currency, so there's US dollar LIBOR, there's sterling LIBOR, there's yen LIBOR. It exists for a number of different currencies, but it's meant to represent where banks could finance themselves in the front end of the market. It also exists in both overnight, out to one-year terms. So it's a pretty broad spectrum over time.”
2018-10-29 · Goldman Sachs Exchanges · LIBOR's Long Goodbye · IDENTIFIED FROM THE TRANSCRIPT