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24 February 2014

FN: Banks' hopes rise for clearing capital reprieve


Rules that looked set to affect severely European banks' ability to trade across Asia are likely to be delayed, in a development that will offer relief to a swathe of the institutions active in the region.

The European Commission is poised to grant a discretionary delay to an aspect of the Capital Requirements Regulation IV that penalises banks’ exposure to clearing houses it believes are unsafe, according to three individuals close to the discussions.

Clearing houses reduce risk by guaranteeing a trade in the event either counterparty defaults. Under the new rules, a bank’s exposure to an EU-based and approved clearing house is subject to a 2 per cent risk-weighted capital charge, but this jumps to as high as 50 per cent if the clearing house is non-EU, unless the EU gives it approval. This higher risk weighting is due to come into force on June 15.

ESMA is assessing whether a slew of foreign jurisdictions and their clearers clear the EU bar, but many fear ESMA has too much work to do in the time available. Industry figures had feared that activity in markets such as China, India and Korea could be curtailed as banks may decide to stop trading due to the increased cost.

However, one official at the European Commission said: “Our approach is pragmatic: we will take stock on the progress of the recognition process for foreign central clearing counterparties in the coming weeks and recommend… postponing the deadline if it appears that more time is needed.”

Two public affairs executives at different clearing houses added they believed the Commission would concede. One said: “I understand that ESMA is pushing for a postponement, as it will be detrimental to European firms".

Full article (Financial News subscription required) 



© Financial News


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