European Market Infrastructure Regulation
CCPs: Central Clearing of OTC Derivatives
Banks: The Impact of New Regulation
Hedge Funds: Risk Management in an Illiquid World
Insurers: Liability-driven Investing for Insurers
Counterparty Risk Management
Collateral: Transformation & Optimisation
Banks are changing their business mix in response to the massive changes in the regulatory landscape. However, specific regulation of the derivatives market is only a part of this. Greater changes are being driven by more general rules relating to capital ratios, leverage, balance-sheet size and even taxation (see Table 7.1). A profitable bank could absorb each measure on its own without too much trouble. However, the combination of all these changes has reduced the profitability of many trading desks within investment banks, leading to a reduction of staffing and trading activities.
IMPACT ON BUSINESS
Capital requirements have been raised and leverage ratios imposed with the aim of making bank defaults less likely. Additional capital buffers have been added for the largest banks due to their systemic importance, and by some national regulators due to the outsized role of some banks in local economies. This has been encouraged by governments fearing a repeat of the “too big to fail” crisis in 2007–09, where a number of large banks were nationalised and bailed out by taxpayers as politicians feared the fall-out from a major bank collapse in the local economy.
As a result