Capital rules push banks to trade through central counterparties

Tim Wallace
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BANKS will have to set aside less capital against trades through central clearing houses in a bid to encourage them to use the services, the Basel Committee said yesterday.

And lenders face putting more capital against trades not cleared centrally.

The aim is to make banks use the central counterparties (CCPs), making it easier for regulators to follow the flow of banks’ trades and exposures to each other.

And central clearing is intended to reduce the chaos when a bank fails – with central clearing it should be easier to unwind contracts and track debts.

Interim rules previously in place sometimes meant banks held more capital against centrally cleared trades, undermining the G20 leaders’ goals to promote the use of central counterparties.

“Completion of the revised capital requirements for bank exposures to CCPs is another important step towards fulfilling our reform agenda,” said basel Committee chairman Stefan Ingves.

“It shows that international standard-setting bodies, through close collaboration, can combine disparate perspectives and arrive at relatively simple solutions for complex issues.”

The changes will cap the capital charge when using CCPs at the same level as non-CCP trades.

The final capital charges for each trade and instrument have yet to be calculated.

The new rules will come into force at the start of 2017.