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Banks eye SPVs to ease capital pain 

April 28, 2014
Christopher Whittall, IFR

Bankers are dusting down off-balance sheet trading vehicles known as derivatives product companies (DPCs) in a bid to lower the costs associated with running swaps businesses under Basel III leverage and capital rules.

Originally conceived in the early 1990s to enable thinly capitalised banks to trade derivatives, DPCs fell from grace during the financial crisis as concerns grew about counterparty risk and bank complexity.

But spinning off swaps activities into special-purpose vehicles could be set for a revival as banks seek to ease the pain of re-sizing trading businesses to comply with the new regulatory landscape.

Ideas range from moving swaps trading activity into special-purpose vehicles part-owned by private equity or hedge funds, to an ambitious project to establish a joint DPC where dealers rent space in what would amount to a flat-sharing arrangement.

Read more: IFR

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