Unblocking the balance sheets

Clive Davidson
01 Apr 2005

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Swaps dealers have always had a problem with redundant trades. While traders try to minimise market exposure by keeping their net positions relatively flat through offsetting buy and sell positions, they are still exposed to counterparty credit risk and operational risk by holding the contracts through to maturity. This means they have to hold regulatory capital against the trades, inflating banks’ balance sheets. The obvious solution is to tear up unwanted trades. But that was

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