The Bank of England has said that regulators will look at ways that may ease capital requirements for banks that clear large numbers of financial derivatives. At present, rules require that banks add up their gross exposures to derivatives, such as credit default swaps, when calculating compliance with the new ratio. However, banks argue that chunks of the billions of euros in derivatives they trade on behalf of customers will have to be cleared in future, or pass through a third party to make sure of a trade's completion; during the clearing the customer has to post a margin or cash to cover risks of losses, which the bank says should mean they can deduct the margin from their derivatives exposures to leave a net figure that would not have to be covered by so much capital. Prudential Regulation Authority Bank of England's, Stephen Bland who wrote the leverage ratio rule, is now working on the issue.
The Bank of England has said that regulators will look at ways that may ease capital requirements for banks that clear large numbers of financial derivatives. At present, rules require that banks add up their gross exposures to derivatives, such as credit default swaps, when calculating compliance with the new ratio. However, banks argue that chunks of the billions of euros in derivatives they trade on behalf of customers will have to be cleared in future, or pass through a third party to make sure of a trade's completion; during the clearing the customer has to post a margin or cash to cover risks of losses, which the bank says should mean they can deduct the margin from their derivatives exposures to leave a net figure that would not have to be covered by so much capital. Bank of England's Prudential Regulation Authority, Stephen Bland who wrote the leverage ratio rule, is now working on the issue.