CVA problems, CCP resolution and digital tokens

The week on, August 22-28, 2020

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CVA desks arm themselves for the next crisis

March’s volatility forces dealers to fine-tune hedging strategies

Imperfect balance? Clearers weigh EU’s CCP resolution tools

Potential levels of loss mutualisation under EU rules are unnerving some clearing members

Barclays proposes new taxonomy for digital tokens

A common approach to classifying tokens is needed to prevent regulatory arbitrage, UK bank argues

COMMENTARY: What’s that in real money?

The inventors of cryptocurrency thought they were devising a new form of money. More than a decade later, we’re still trying to work out exactly what they and their followers did in fact come up with.

As TV host John Oliver said in his Last Week Tonight show a few years ago, crypto-assets are “everything you don’t understand about money combined with everything you don’t understand about computers”.

Blockchain applications have undergone a sort of Cambrian explosion in the past couple of years. Innumerable cryptocurrencies based on the bitcoin model have been launched – many have proved critically insecure or vulnerable to theft. Central banks around the world are pushing ahead with their own digital currency projects, Facebook’s Libra project has survived several rounds of criticism, and major financial institutions are testing the water around utility settlement coins and digital bonds.

This week, reports on a new effort by Barclays – no slouch itself in the digital asset field – to regularise this expansion with a taxonomy of digital tokens. The result classifies tokens along seven different axes – but it will only be a first step towards the goal of consistent regulatory treatment.

Regulatory arbitrage is common enough even when everyone agrees on what’s actually being traded – when one country thinks something is a commodity and the other thinks it’s a currency or a security, the problems are far greater. So far, the main barrier to regulatory arbitrage with digital currencies has been simply that not enough people take them seriously as financial instruments of any kind – there really isn’t a big enough market to be worth arbitraging. But it’s looking increasingly likely that this will change.

Defining exactly what one particular digital token is will mean diving into the depths of financial philosophy: what exactly is it that makes money money? What are these strings of bits, legally speaking, and whose business will it be to oversee them? It will be tough for regulators to make the case that urgent attention needs to go to a market that is still very much in its experimental stages. But the case will need to be made if this new asset class is not to be an avenue for exploitation by ill-intentioned market participants.


Over the six years to 2019, Deutsche has reduced the underlying values for all 12 systemic risk indicators used to calculate its global systemically important bank score. The firm has slashed total exposures by 33%, to €1.18 trillion ($1.39 trillion). Exposures fell 8% between 2018 and 2019 alone.



“A consumer mortgage cannot be treated as a utility bill where you find out at the end of the month what the interest payment you owed was” – Ameez Nanjee, Freddie Mac, on the different conventions for calculating SOFR rates in securities markets and loan markets.

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