The Property Derivatives Industry Group is redoubling its efforts to make it possible for banks to use property derivatives to hedge their own real estate risk.
The special interest group of the Investment Property Forum is in talks with the Bank of England. PDIG’s chairman, Paul Ogden, founder of fund manager inProp Capital, said that regulators want to reduce banks’ exposure to real estate market risk and that IPD is a good proxy. Property derivatives are traded on the IPD indices.
Ogden said: “Suitable risk- reducing techniques such as hedging with property derivatives need to be taken into account in slotting. If hedging sufficiently reduces its risks, an otherwise ‘weak’ loan could be promoted to a ‘satisfactory’ slot.” This would reduce the regula-tory capital required, giving banks a better return on real estate lending.