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When asked what would have the biggest impact on their business, capital requirements came top with an average score of 2.12 out of three. Clearing rules was their second biggest concern with a score of 1.95, followed by leverage constraints, which scored 1.78.
Will Rhode, global head of capital markets research at the Boston Consulting Group, said: “Capital requirements are already having a massive impact on the risk appetite of banks, while clearing of OTC derivatives has necessitated an industrial effort to build the necessary infrastructure to facilitate buyside clearing. “When those two components are combined with the leverage ratio, it will be much more difficult for banks to reach the kind of return-on-equity they want for their capital markets enterprises.”
One model that has been widely discussed is agency trading, in which banks match buyers and sellers or direct trades to external venues rather than holding the risk on the balance sheet until they can take the other side of the trade. Banks recognise that there will still be demand for principal risk-taking in some products in the future but many have opened agency businesses to operate alongside their existing teams.
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