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    BCBS Consults on Leverage Ratio Treatment of Cleared Derivatives

    October 18, 2018

    BCBS is consulting on amendments to the treatment of client cleared derivatives under the Basel III leverage ratio. This consultative document seeks views on whether a targeted and limited revision of the leverage ratio's treatment of client cleared derivatives may be warranted. Comments are requested by January 16, 2019.

    BCBS is consulting on whether a targeted and limited revision of the treatment of leverage ratio of client cleared derivatives may be warranted. This proposal is based on the findings of the BCBS review of the impact of the leverage ratio on banks' provision of client clearing services. The proposal also considers the key policy objectives of G20 leaders to prevent excessive leverage and improve the quality and quantity of capital in the banking system and to promote central clearing of standardized derivatives contracts. Stakeholders are invited to provide concrete and robust empirical evidence to support their views. The range of treatments that BCBS may consider include:

    • No change to the current treatment
    • An amendment to the treatment of client cleared derivatives to allow cash and non-cash initial margin received from a client to offset the potential future exposure of client cleared derivatives
    • Alignment of the treatment of client cleared derivatives with the standardized approach for measuring counterparty credit risk exposures (SA-CCR). 

    The alignment of the treatment of client cleared derivatives with SA-CCR would have the effect of allowing both cash and non-cash forms of initial margin and variation margin received from a client to offset the replacement cost and the potential future exposure amounts of client cleared derivatives. In addition, BCBS is requesting feedback on the merits of introducing a requirement for initial margin to be segregated in order for any amended leverage ratio treatment to apply. Views are also being sought on the forward-looking behavioral dynamics of the client clearing industry that might result from any amended treatment.

     

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    Comment Due Date: January 16, 2019

    Keywords: International, Banking, Client Cleared Derivatives, SA-CCR, CCP, Basel III, Leverage Ratio, BCBS

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