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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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Basel Leverage Rules to Put Pressure on Wall Street

By Dominic Elliot
Published June 26, 2013 New York Times' DealBook

The Basel committee’s effort to harmonize leverage rules will raise the heat on Wall Street. The global regulator wants banks to present a leverage ratio metric that would include additional notional values for derivatives. That would limit significantly the ability of American lenders to offset opposing derivatives trades.

Basel’s proposals aim at creating the sort of level playing field that banks usually beg for. At the end of last year, none of the Wall Street’s five largest banks — Bank of America, Citigroup,Goldman Sachs, JPMorgan Chase and Morgan Stanley — reported leverage of more than 20 times equity, as a result of the leniency of generally accepted accounting principles toward derivatives exposures.

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EU Eyes March 22 Deadline for Basel Law to Avoid Delays

By Rebecca Christie and Caroline Connan
Published February 26, 2013 Bloomberg

The European Union must press ahead with global bank capital standards to avoid fresh delays and to give certainty to lenders that must abide by the overhaul, the bloc’s financial services chief said today.

“We need agreed rules as soon as possible so that banks know which way they are going,” Michel Barnier said in an interview on the sidelines of a conference in Paris.

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Non-Cleared Margin Proposals Still Miss the Point

By David Clark
Published February 22, 2013 The Trade

The latest approach by global regulators to establish a framework for margin payments against non-cleared swaps will eliminate some unnecessary costs but still fails to address the core concerns of banks.

A joint consultation last week from the International Organization of Securities Commissions (IOSCO) and the Basel Committee on Banking Supervision (BCBS) proposed an exemption for initial margin payments on the first €50 million of bilateral swaps deals. Variation margin would need to be posted, based on the mark-to-market value of a trade on a daily 

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EBA to Rank Most-Liquid Securities for Hitting Basel Goal

By Ben Moshinsky
Published February 21, 2013 Bloomberg

Europe’s top banking regulator will start ranking financial assets in order of liquidity as it implements international rules to protect banks from a sudden loss of short-term funding.

The European Banking Authority will create a “scorecard” of asset liquidity, the agency said in an e-mailed statement, as part of requirements that banks hold a buffer of assets, known as the Liquidity Coverage Ratio, they can quickly sell to survive a 30-day credit squeeze.

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EU Said to Weigh Bank Debt Rule Delay in Blow to Basel Timetable

By Jim Brunsden
Published January 28, 2013 Bloomberg

The European Union is weighing a one-year delay to the deadline for lenders to disclose whether they meet a debt ratio, in the latest blow to the global timetable for applying Basel bank rules, according to three people familiar with the discussions.

EU nations may seek to push the start date for mandatory disclosure of this so-called leverage ratio from Jan. 1, 2015, to Jan. 1, 2016, said the people, who couldn’t be named because the talks are private. The revised date was discussed by diplomats at a meeting today, they said.

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Global Margin Standards Face Further Delays

By Joel Clark, Matt Cameron, Lukas Becker, and Duncan Wood
Published January 25, 2013 Risk

New global standards on derivatives margin requirements appear to be facing significant delays, amid claims policy-makers have been unable to agree on the treatment of foreign exchange derivatives, and are also now planning to launch a second consultation, in part because of worries about the amount of collateral the current proposals would consume.

The standards are being drawn up by the Working Group on Margining Requirements (WGMR) - a joint working group of the Basel Committee on Banking Supervision and the International Organization of Securities Commissions - and would apply to over-the-counter derivatives that are not centrally cleared. Proposals were published in July last year, but were due to be finalised by the end of 2012.

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The Real Reason to Worry About Basel III Liquidity Rules

By Karen Shaw Petrou
Published January 16, 2013 American Banker

A seemingly-technical rewrite to the Basel III liquidity rules has attracted a remarkable amount of attention, including a recent editorial from The New York Times, a newspaper usually too august to parse complex international banking rules. 

Much of this public scrutiny has pronounced the revised liquidity rules "watered down." In fact, they aren't, but one change still contemplated by the Basel Committee could not only dilute the liquidity rules, but also brew a heady cocktail for too-big-to-fail banks outside the United States. 

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