In a victory for banks, global financial regulators revised rules governing how much money must be set aside to cover losses by swaps traders, backing away from guidelines that firms warned would destabilize the $693 trillion derivatives market.
The Basel Committee on Banking Supervision’s final rule, released today, would require swaps dealers to hold less cash to protect against defaults than did a proposal published last year. The plan now applies a minimum 20 percent risk weighting to money deposited at clearinghouses, which are third parties that guarantee the transactions, down from 1,250 percent in the original proposal. The change takes effect on Jan. 1, 2017.
The interim plan had threatened to boost costs as much as 92 times, according to calculations by three banks shared with Bloomberg News. The risk from that original rule, which was last revised in 2013, was the higher costs could have caused market participants to flee rather than take advantage of the clearinghouses, making it more difficult for the third parties to safeguard the swaps market.
“They really had people spending a year thinking about it, and they reversed it,” said Chris Cononico, president of GCSA LLC, a New York-based underwriter that’s seeking to insure derivatives clearinghouses. “The banks should be very happy,” he said. The proposed rule “seems to have evaporated,” he added.
International regulators are trying to safeguard trades and bring more openness to a market whose secrecy and sheer size overwhelmed regulators in 2008. Where swaps had been one-on-one deals before, now they would be backstopped by third parties in clearinghouses that ensure everyone can pay, with the aim of avoiding emergency bailouts and panic. Basel is made up of regulators from 27 of the world’s largest economies and sets international bank supervisory guidelines.
Swaps are what investors use to help guard against risk. They’re bought by pension plans and retirement funds to protect against fluctuations in interest rates, meaning they affect most people who own annuities. They’re used by the U.S. government to limit exposure in the mortgage market and cut home-loan costs. Investors can also hedge an investment in a company by buying a swap that will pay them if a borrower stops paying its debts.
They’re called swaps because investors and banks exchange, or swap, payments over time based on how interest rates move or how the creditworthiness of companies changes. They trade on swap execution facilities, including one run by Bloomberg LP, the parent of Bloomberg News. Other SEF owners include ICAP Plc and Tullett Prebon Plc.
There’s about $30 billion in default funds worldwide, GCSA’s Cononico said. The largest swaps clearinghouse owners are exchanges: CME Group Inc., IntercontinentalExchange Group Inc., London Stock Exchange Group Plc (LSE) and Deutsche Boerse AG.
The world’s largest derivatives brokers at the end of 2013 were owned by Goldman Sachs Group Inc., JPMorgan Chase & Co. (JPM), Newedge Group SA, Deutsche Bank AG (DBK), Morgan Stanley (MS) and the Merrill Lynch division of Bank of America Corp. (BAC), according to the U.S. Commodity Futures Trading Commission.
The reversal by Basel is “not just a victory for the banks, it’s a victory for the system,” said Will Rhode, director of fixed-income research at New York-based Tabb Group LLC. By reducing the cost to clear trades, more banks will be able to offer clearinghouse services to their clients such as money managers and pension funds, he said. “That means more capacity for clearing will be there and the system won’t be working at cross purposes.”
Since 2010 we have seen nation after nation cry for a bailout package from the IMF through its many central banks, leading to austerity measures to gain the credit which are devised to completely takeover the entire asset base of the nation in need of a bailout.
The Basel Committee on Banking Supervision (BCBS) is also in control of the Credit Rating Agencies (CRAs) such as Moody’s, through the issuance of guidelines. Moody’s and other CRAs are very busy dismantling the high street banking system based entirely on their ability to downgrade, upgrade or affirm banks and company financial ratings.
Ultimately the power to this effect lies with the Bank for International Settlements through the BCBS.
“The Basel Committee on Banking Supervision (BCBS) is also in control of the Credit Rating Agencies (CRAs) such as Moody’s, through the issuance of guidelines.”
these are the 2 most important financial groups in the world..basel (BCBS) and the BIS..working in hand with the imf and credit ratings agencies..its a rigged game..and despite all the horror of 2008 they still allow the banks and traders to get away with more!
“global financial regulators revised rules governing how much money must be set aside to cover losses by swaps traders”
and they didnt revise it UP did they?