BAML and Morgan Stanley swaps drop $186bn on VM change

At least seven banks now using settled-to-market treatment for variation margin

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Treating VM as settlement has slashed cleared swaps assets for US banks

Bank of America Merrill Lynch (BAML) and Morgan Stanley have started treating the variation margin on their cleared swaps as settlement of those trades, rather than as collateral – a step that slashed their gross derivatives assets by a combined $186 billion in the third quarter and may also have allowed them to cut capital.

The move comes after the Federal Reserve gave the green light to the practice in August. EU banks are thought to be waiting for similar guidance from the European Central

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