Banks and pension funds fall out over bond CSAs

Common ground hard to find as dealers try to cut leverage exposure

huy-nguyen-trieu
Huy Nguyen Triêu, Citi

Not so long ago, pension funds were ideal clients for banks.

They routinely entered into large – and lucrative – long-dated interest rate swaps, and were willing to collateralise the resulting exposures with liquid government bonds.

But with banks starting to focus on the impact of the leverage ratio, which does not allow bonds to net down exposures, pension funds' habit of using non-cash collateral has turned them into undesirable clients.

"Banks' inability to net the collateral they receive fr

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