Leverage ratio changes threaten European clearing model, industry warns

Proposed revisions appear to catch back-to-back trades that are used to get exposure into European CCPs


Revisions to the Basel III leverage ratio could destroy the incentives regulators are trying to create for trades to be centrally cleared, banks are warning, by driving up the exposure number against which the industry has to hold at least 3% in Tier I capital.

Fears about the clearing impact are focused on the European model, which uses two back-to-back trades to get exposures into a central counterparty (CCP). Under the June 26 revisions, the industry believes both of these trades – between a

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