Tying up real or imaginary cash

April 14, 2010

I’ve spent the morning drafting the EACT’s submission to the European Commission’s consultation on the new (Basel III) capital requirements regime.  Impenetrable source documents for many of us – but for some time I’ve felt the issue was blindingly simple.

Let’s assume commonsense prevails on the need to allow corporates to continue to use OTC derivatives without having to go through central clearing and tie up real or imaginary cash to meet unquantifiable future margin calls.  If the arguments for that are accepted – and although we are not there yet the signs are positive – will legislators, regulators and civil servants really take leave of their senses and allow Basel III to reverse the exemption?

More to follow on this and I’ll post a link to our submission once it’s agreed across representatives of treasury associations in 19 countries (no kidding).  In the meantime I’m about to take a call from a US risk advisor who wants me to comment on a draft article he’s preparing that’s headed ‘What Does Europe Know About Derivatives that the White House Doesn’t?’.  Great stuff – and at the end of a 24 hour period in which the political tensions around OTC regulatory proposals seem to have been heating up – look at Senator Blanche Lincoln’s website and also try to track what Senator Saxby Chambliss has been saying (not an easy task).

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One Response to “Tying up real or imaginary cash”

  1. Jiro Okochi Says:

    Richard

    I agree with your blog in that the battle for end user exemptions will hopefully be won but the war on keeping costs low may be lost as the increased capital charges and potential margin requirements will come from banks, if not clearing firms. I am not sure how collateral threshold amounts will be treated under Basle III but the only hope will be corporates can get large enough threshold amounts in their CSAs before they actually have to post collateral to the banks. Banks will also be more flexible with the CSA vs. the fixed requirements for clearing so most better rated corporates I speak to would rather live with CSAs with banks than margin rules with regulated clearing firms.


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