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Banks accept derivatives rule change to end 'too big to fail' scenario

OWoN: Derivatives are coming to a crunch time.

Safe to say real change is coming as the banks know the wheel is turning away from the past.

A man walks past a building in the morning mist at London's financial district of Canary Wharf September 16, 2014 - Image: Reuters/Kevin Coombs

Banks accept derivatives rule change to end 'too big to fail' scenario

By Huw Jones
11 October 2014

The $700 trillion financial derivatives industry has agreed to a fundamental rule change from January to help regulators to wind down failed banks without destabilising markets.

The International Swaps and Derivatives Association (ISDA) and 18 major banks that dominate the market will now allow financial watchdogs to apply temporary stays to prevent a rush to close derivatives contracts if a bank runs into trouble, the ISDA said on Saturday.

A delay would give regulators time to ensure that critical parts of a bank, such as customer accounts, continue smoothly while the rest is wound down or sold off in an orderly way.

That would help to avoid the type of market chaos sparked by the collapse of Lehman Brothers in 2008 and also end the problem of banks being considered too big to fail.

The Financial Stability Board (FSB), a regulatory task force for the Group of 20 economies (G20), had asked the ISDA to make the changes with the aim of ending the too-big-to-fail scenario in which banks are propped up with taxpayer money to avoid market disruption.

Under the new contract terms, default clauses in derivatives contracts such as interest rate or credit default swaps would be suspended for a maximum of 48 hours.

'Evolutionary process'

"Ending too-big-to-fail is going to be an evolutionary process, but the agreement of the first wave of banks to sign the protocol is a big step forward," ISDA Chief Executive Scott O'Malia said.

The ISDA template for millions of derivatives trades will now include the possibility of stays on both new and existing contracts, with the 18 leading players - including the likes of Credit Suisse (CSGN.VX) and Goldman Sachs Group (GS.N) - agreeing to change their contracts from January. Many derivatives are traded among banks.

"Well over 90 percent of the outstanding derivatives notionally held by the G18 banks will be covered with stays, which will give regulators some time to deal with a resolution of a bank in an orderly way," O'Malia said.

More banks are expected to follow suit as regulators across the G20 countries introduce new rules next year to require counterparties to derivatives trades to accept stays.

Mandatory rules will also mean that another big user of derivatives, the asset management industry, will have little choice but to accept stays.

Asset managers have resisted so far, arguing that they have a legal duty to their clients not to delay getting their money back from a failed bank and that agreeing to stays voluntarily could leave them open to lawsuits.


1 comment :

  1. Wall Street Banker crimes - This is What Happens When Consolidation Eliminates Competition.

    The consolidation of our very many banks into the ownership of them all by just a few, is in part, what contributed to the corruption that has run rampid in our international banking sector. Just look at the charts below and see just how bad it is. There is virtually no competition anymore as we have known it. If this spreads, then we pay whatever they decide with no consideration of demand, since a few own it all, so they don't care and can act in any unethical manner they decide to act in.

    No one has gone to jail and wait till you see the list of the crimes they have committed. And no one has been shut down, so there are two laws for criminals. If you steal food to feed your family you go to jail, If you steal other peoples money to finance your opulent life style, you go free. THIS IS YOUR NEW WORLD ORDER...... How do you like it so far??? My Question is

    1. "WHICH OF THESE BANKS, BELOWS CEO, ENGAGED IN CRIMINAL ACTIVITY, AND STILL RECEIVED MASSIVE MILLIONS IN BONUS CHECKS?" Another question I have is who paid for it? Were the tarp funds used to pay for these bonuses?


    I would love an answer to those since I remember them getting these massive bonus checks after we bailed them out with the TARP bill. And I remember that there was no distinction in the tarp bill which funds paid for which losses? They should go to jail for 20 years for what they have done.

    Now I understand Kaiser and his videos with respect to the criminal banking system that is allowed to go hog wild in criminal theft of their clients hard earned money. He was not kind in his treatment of these bankers and spoke truth to power publically about all that they had done. I wonder if that played a role in the prosecutions that did occur, and culminated in settlements with no jail time for the perpetrator.

    I just read that China has surpassed the US as the largest economy in the world right now. At this point if they were smart, the Chinese would kick them out of the country right now before the brokerage houses had a chance to skim the cream off the top and then break them down into a third world country.

    Well, here is a warning to the Chinese, who HIRED GOLDMAN SACHS, OWNED BY ROTHSCHILD OF BRITAIN, AS THEIR EXCLUSIVE BROKERAGE HOUSE INTERNATIONALLY, and that is this...... WATCH OUT, YOU ARE NEXT. They trained 3,000 of your nations leaders at Oxford and that is where the training is done to pilfer and scheme and steal your nations wealth. Stop it now, before its too late.

    Wall Street crimes


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