Dealers pitch loan format for swaps as CVA dodge

Banks are offering to replicate the economics of OTC swaps in loan format - avoiding new capital and clearing rules

Banks have a simple solution to the regulatory challenges facing the over-the-counter derivatives market: turn OTC swaps into loans instead. The idea has been explored for some time as a way to avoid the clearing and capital requirements that apply to derivatives, but one banker says the idea is now being "enthusiastically marketed" to corporates, which are most exposed to the side-effects of the new rules.

"This was one of the first things dealers thought of to avoid incurring punitive capital