| LONDON, June 28
LONDON, June 28 Banks will have to set aside
capital to back their risky financial derivatives trades under
draft rules published by global regulators on Friday to
safeguard market stability.
The Basel Committee of Banking Supervisors from nearly 30
countries set out the final pieces in its complex jigsaw of
reforms called for by world leaders during the financial crisis
to make derivatives more transparent and risks better covered.
Regulators were alarmed at how long it took them to find out
who was on the other side of derivatives trades of ailing
institutions like Lehman bank, which collapsed in 2008.
The rules will reshape the $633 trillion off-exchange market
for interest rate, commodity and credit default swaps.
These contracts are traded bilaterally by banks but the
reforms will require them to pass through third-party clearing
houses backed by a default fund.
The draft rules show how to calculate the amount of capital
banks must set aside to cover their exposures to clearers,
replacing Basel's interim rules from last year.
No capital is set aside currently on such exposures.
The changes to the interim rules also make sure that the
capital charges on cleared trades will not be higher than if
they had been left uncleared, the committee said.
Under the rules, banks will have to set aside less capital
on trades that pass through clearing houses than ones left
"There was also concern that, in some cases, the interim
capital treatment might not create the appropriate incentives
for maintaining generous default funds," the committee said in a
Some regulators worry that clearing houses will become new
centres of risk and should have big enough default funds.
The reforms were meant to be ready by the end of 2012 but
their complexity has led to delays, giving banks more time to
adjust to a more expensive system for trading derivatives.
The draft rules are open for public consultation and the
committee will gather data from clearing houses to fine-tune the
rules, which it will finalise in December with introduction in
2014 at the earliest.