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Clearing Members Propose Concessions

By Mike Kentz
February 21, 2015, IFR

Derivatives bankers have offered a major concession to global regulators in an effort to save a business they believe is being threatened by Basel leverage ratio requirements.

Major bank executives offered, at a Basel-convened meeting in London two weeks ago, to give up the right to reinvest the collateral their clients post to back derivative transactions if it means regulators will relax leverage ratio requirements.

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Hit the Floor: Banks Fear Basel Curbs for Capital Models

By Fiona Maxwell
February 4, 2015, Risk

One way for regulators to exert some control over too-disparate capital numbers is to apply a system of floors. Rules are in the works, but the big question is where they will be struck and what the effect will be. Industry critics are already warning of dire consequences. 

There are not many ways in which internal models are like sports cars, but plans to impose a floor on modelled capital numbers has brought some parallels to light. In effect, the floor is like a speed limit – a bank can drive as slowly as it likes, but if its models suggest it can safely put its foot down, the limit takes effect. And if that limit is too low, of course, a bank may as well trade in the sports car for something that requires less maintenance.

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Comment: Regulators Right to Cut Biggest Banks Down to Size

By John Gapper
January 7, 2015, Financial Times

Goldman Sachs caused a bit of a stir this week by issuing an analysts’ report suggesting JPMorgan Chase might want to break itself up. I believe in the independence of investment bank research as much as the next person, but it is hard not to notice that the major beneficiary of such a step would be Goldman Sachs.

That is not to say it is a bad idea. In fact, it may be a very good idea, possibly for JPMorgan’s shareholders, and definitely for society as a whole. It also suggests that the world’s banking regulators are steadily coming around to the idea of dismantling the largest banks with their own tools rather than relying on governments to do the right thing. If so, jolly good luck to them.

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Banks Face Basel Clampdown on Risk-Model Variation

By Boris Groendahl and Rebecca Christie
Published October 9, 2014 Bloomberg

Global regulators are preparing to narrow banks’ options for assessing credit risk in a bid to prevent the understatement of possible losses.

The Basel Committee on Banking Supervision will publish a report by early November on “excessive” variability in the models banks use to assign risk and measure capital needs, Secretary General Bill Coen said in an interview at the regulator’s headquarters in Basel, Switzerland. The document has been prepared for the Group of 20 nations.

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Barnier Hints at Longer Pensions Clearing Exemption

By Cecile Sourbes
Published September 12, 2014 Risk

The EC's head of internal markets, Michel Barnier, has hinted that the regulator will extend the pension funds derivatives clearing exemption beyond 2015

The European Commission's outgoing head of the internal market and services division, Michel Barnier, has hinted that the EC will extend the temporary exemption pension funds have from mandatory clearing of their over-the-counter derivatives trades beyond 2015.

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Banks Face More Oversight of Ability to Weather Credit Crunch

By Jesse Hamilton
Published September 3, 2014 Bloomberg

U.S. regulators, closing in on their mandate to force financial firms to prove they can weather another credit crisis, are set today to finish two key rules governing the banks’ balance sheets.

The Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. are ready to issue a mandate that banks set aside enough easy-to-sell assets to survive a 30-day liquidity drought and wrap up rules on how much loss-absorbing capital must be held against total assets.

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Banks Face 2016 Risk Deadline

By Staff
Published May 15, 2014 Markets Media

Global systemically important banks, or G-SIBs, are having a tough time complying with principles laid down by the Basel Committee on Banking Supervision for risk data aggregation and risk reporting.

G-SIBs are required to implement the principles in full by the beginning of 2016, and the Committee is monitoring their progress towards meeting this deadline. In addition, the Committee strongly suggests that national supervisors apply these principles to institutions identified as domestic systemically important banks three years after their designation as such.

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Banks Turn to Compression to Meet New Basel Rules

By Philip Stafford
Published March 31, 2014 Finanical Times

Until recently, the Basel III capital requirements had never been a central part of the post-crisis debate by the derivatives industry. No longer.

Banks’ concerns over a rule change introduced by the Basel Committee on Banking Supervision (BCBS) in January are deepening as they digest the implications for their large derivatives portfolios.

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Basel Leverage Ratio May Force CSA Restructuring

By Matt Cameron and Lukas Becker
Published January 14, 2014 Risk

Banks will only be allowed to reduce derivatives exposure with cash variation margin under the final Basel leverage ratio rules if it is in the same currency as the underlying swap. This, they claim, is a ridiculous hurdle, as it will force them to restructure their existing collateral agreements.

The rule could also deal a blow to the new standard credit support annex (SCSA).

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Basel Tries to Create Clearing Pull with New Capital Rules

By Matt Cameron and Lukas Becker
Published July 2, 2013 Risk

The Basel Committee on Banking Supervision has revamped its capital rules for cleared exposures after deciding an interim regime published last July had "fallen short of the desired objectives", producing a range of charges that was difficult to justify. Regulators feared the rules could have removed incentives for derivatives market participants to use central counterparties (CCPs) – a fear shared by dealers, which had been pushing their own alternative approach.

The latest proposals rely in part on separate draft rules for a new, standardised approach to the measurement of credit risk, known as the non-internal model method (Nimm). These proposals were published alongside the draft rules for cleared exposures on June 28. Bankers are still digesting the implications of the two documents, but early reactions have been positive.

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