With Swaps Rules Already Multiplying, U.S. Agencies Throw in One of Their Own

By Joe Adler

With the Dodd-Frank Act and Basel capital regime already imposing new requirements on derivatives players, the U.S. bank regulators added another one Tuesday completely of their own accord. The four agencies established standards for “effective” management of counterparty risk, calling on banks to expand the role of boards in managing such risk and improve how they gauge and limit counterparty exposures. The guidance complements swaps measures in both Dodd-Frank and the Basel framework, but was not required by either initiative. A separate rule by the regulators mandated by Dodd-Frank, for example, would set specific capital and margin requirements for certain derivatives transactions. Under Basel III, meanwhile, counterparty risk is among the factors determining a bank’s risk-weighted assets when calculating its capital ratio. Some said the agencies were likely trying to weigh in on the issue with principles before more prescriptive measures are completed through Basel and Dodd-Frank rulemakings. “What this is is a statement of U.S. policy on the issue of counterparty credit risk management ahead of the curve to some extent because the international and Dodd-Frank standards are still being constructed,” said Karen Shaw Petrou, managing partner at Federal Financial Analytics Inc. “It’s useful because as guidance it really does begin to outline the framework the bank regulators will expect of the largest institutions and does so right now in this more consultative fashion. Guidance provides interaction in the way a flat out rule does not.” Petrou added that while the Basel committee could construct specific rules on risk management, the international capital regime has not yet delved into the issue very deeply. “There are risk-management requirements in very broad terms in the Basel statements. … But it’s not to my knowledge as detailed as what is outlined here,” she said.

http://www.americanbanker.com/issues/176_128/swaps-rules-multiplying-agencies-throw-their-own-1039731-1.html

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