Banks pitch auto-resetting CSAs to cut leverage ratio and XVAs
Regular settlement of margin would reduce swaps' residual maturity
European buy-siders are being asked to sign up to a new style of credit support annex (CSA) that would cut bank capital costs by settling and re-striking trades every few months.
Banks would be able to hold less capital using the CSA, because regular settlement would cut down the residual time to maturity of swaps, a key input in the calculation of the leverage ratio. Some of the cost savings could be passed on to clients.
A liability-driven investment (LDI) portfolio manager at a major asset
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