UPDATE 1-Basel eases bank capital rule for derivatives clearing

Thu Apr 10, 2014 1:10pm EDT

(Adds more detail, background)

By Huw Jones

LONDON, April 10 (Reuters) - Banks will not have to hold as much capital as feared to cover trading losses, global regulators said on Thursday in their latest easing of rules to avoid crimping economic recovery.

The Basel Committee of banking supervisors from nearly 30 countries published its finalised rule on how much capital banks must set aside to cover trading positions at clearing houses from 2017.

It is the last piece in a complex regulatory puzzle ordered by world leaders in 2009 to improve transparency and safeguards in the $700 trillion derivatives market whose opacity compounded the 2007-09 financial crisis.

World leaders called for swaps to be cleared and recorded but in the past year as concerns over financial stability have eased, politicians have become more mindful of the need to avoid overburdensome rules that make it harder for banks to lend to the economy.

Clearing houses stand between two sides of a trade to ensure its completion if one side goes bust, and are set to grow rapidly as far more of the derivatives market is cleared.

Banks must already comply with interim capital rules from the Basel Committee and the finalised versions contain several changes to ease the capital burden.

There will be an explicit overall cap on capital charges for exposures to so-called qualifying clearing houses, meaning those that meet all the new safety standards. The aim is to encourage banks to only use the safest clearers.

Bank exposures to qualifying clearing houses will be subject to a 20 percent minimum risk-weighting, meaning they have to set aside a fraction of the 1,250 percent weighting necessary under the interim rules.

Basel made the changes after it conducted an impact assessment on how the interim rules work.

"In formulating the revised framework, the committee sought to avoid undue complexity and to ensure consistency, where possible, with relevant initiatives advanced by other supervisory bodies," the Committee said in a statement.

Basel also had to make sure there is a financial incentive to clear trades rather than leaving them uncleared.

Margining requirements for uncleared trades were completed last year, making it possible for Basel to fine tune the rules for cleared trades on Thursday.

The final, scaled back rule is still tougher than the relatively light regime in place before the crisis. (Reporting by Huw Jones, editing by Chris Vellacott and Keiron Henderson)

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