Leverage ratio threat to Eurodollar liquidity
Cost of benchmark contract will rise and liquidity will fall, clearers warn
Past its prime? Banks hope for leverage ratio change
From regulated trading to clearing and reporting, post-crisis reform of the swaps world has often been seen as an attempt by markets regulators to make it work more like its listed cousin. Now, in extending swaps-style capital treatment to listed products, prudential regulators seem to be set on returning the favour, by making futures look and feel more like swaps – that is, worn out, overweight and under pressure.
The culprit is the leverage ratio, which requires banks to hold capital equal to
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