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Regulators focus on leverage ratio fallout in derivatives market 

June 10, 2015

Huw Jones, Reuters

Financial market regulators are looking at whether new rules to ensure banks and brokers are strongly capitalised in the wake of the financial crisis will hamper efforts to make financial derivatives safer.

After introducing measures to make the financial system stabler after the 2007-09 crisis, regulators are now having to fine tune reforms to remove any conflicts and to avoid hampering economic growth.

The derivatives industry has warned in the last few weeks that the new capital rule, known as the leverage ratio, is making it harder for banks and brokers to help customers to clear trades via third party clearing houses, a move designed to increase transparency in the derivatives market.

The leverage ratio specifies the minimum amount of core capital a bank must hold as a proportion of its total assets, regardless of how risky they are.

The ratio is binding from 2018 across the world and banks must report their ratio from this year.

But the collateral banks must hold on behalf of clients to meet clearing house requirements has to be included in their leverage ratio calculation, putting a squeeze on their balance sheet.

Read more: Reuters

 
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