Non-netting status denies capital boost for Chinese banks
Reliable close-out netting could cut China’s SA-CCR capital requirements by around 20%
China’s largest banks could reduce the capital held against derivatives counterparty credit risk by as much as a fifth, following the implementation of new global rules on January 1, but only if regulators bolster netting laws towards international standards.
Close-out netting, which lets derivatives dealers collapse offsetting trades into a single net payment if a counterparty defaults, instead of making and receiving a series of margin calls on gross exposures, is crucial for China’s largest
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