HSBC leads global uptick in OTC derivatives clearing

Systemic banks cleared record €250 trillion in notionals in 2022

HSBC grew its cleared swaps book by 11 percentage points in 2022 - the largest increase among the global systemically important banks. 

The bank cleared 59.6% of its €22.2 trillion ($24.13 trillion) of over-the-counter derivatives, adding €3.29 trillion in cleared notionals compared to the year prior. Bilateral positions fell €1.53 trillion over the same period. 

 

Across the 29 lenders designated as G-Sibs by the Financial Stability Board on November 27, 20 of them published detailed figures on their cleared and bilateral positions. On aggregate, the proportion of OTC derivatives cleared was up 1.3pp year on year to 59.5%, equivalent to €250 trillion in notional exposures. Expanding the analysis to include the 18 non-G-Sibs in the FSB’s 77-bank-strong sample with available data, the aggregate share rose by 1.4pp to 61.4%. Both figures were at their highest since at least 2018.

 

The G-Sibs with the highest share of cleared OTC derivatives at the end of last year were TD Bank with 79%, Groupe BPCE with 76.7% and Santander with 73.5%. Among the non-G-Sibs, the top three spots were occupied by Charles Schwab, Lloyds Banking Group and Rabobank, with shares of 100%, 90.4% and 86.2% respectively.

A handful of banks bucked the overall trend towards clearing. Danske Bank was the outlier among EU banks, shearing 7.9pp off its clearing rate to land at 61.6%, trailed by Wells Fargo and Goldman Sachs, which cut rates by 5.4pp and 6.1pp respectively to 44.9% and 57.2%.

 

The proportion of cleared derivatives across the 38 banks analysed varied substantially by region. At 70.1%, Canadian dealers reported the highest share, followed by banks in the European Union and the UK clearing 65.8% and 64.3% of their swaps. US banks had an average clearing rate of 54.7%.

However, in terms of clearing rate growth over 2022, it was UK banks leading the charge with a 3pp increase, ahead of Canada (2.3pp), the EU (1.1pp) and the US (0.7pp).

 

What is it?

The notional amount of OTC derivatives is one of the 14 systemic risk indicators used by the Basel Committee on Banking Supervision and the Financial Stability Board to benchmark G-Sibs every year. It is one of the five indicators that make up the complexity category, and includes instruments cleared through a central counterparty and those settled bilaterally.

Only banks in some jurisdictions disclose the indicator’s underlying components, breaking down cleared versus non-cleared derivatives. The analysis, therefore, excludes banks from Australia, Brazil, China, India, Japan, Korea and Switzerland, which publicly only report total notional amounts.

Why it matters

Regulators around the world will be pleased to see that the trend towards clearing OTC derivatives is progressing smoothly, albeit slowly. Ten years on since the imposition of clearing mandates, those regulatory efforts are paying off. The recent implementation of the standardised approach to counterparty credit risk, which penalises uncollateralised swaps, and the non-cleared margin rules before that, likely added pressure on global banks and their clients to embrace clearing. 

However, the job is far from done, and the regional differences in clearing rates as well as their pace of increase highlight this. 

Take the US for example, where banks have recently argued that the US Federal Reserve’s  proposal targeting clearing banks using agency models will likely lead to additional capital charges and thus disincentivise clearing.  If the drafted plan comes into effect, and banks are correct in their assumptions, the regional disparity between the US and the rest of the world may well widen further.

Another critical aspect is the lack of data from a number of key jurisdictions. It is somewhat concerning that regulators in countries such as China and Japan, home to five and three systemic banks respectively, do not require their supervisees to publish more detailed disclosures. 

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Currently, the available data covers more than 120 banks and over 100 risk and capital metrics, but we’ll be adding more throughout the year. The Risk Quantum database can be found here. The full list of data points currently available can be found here

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Tell me more 

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Fed throws curveball with agency clearing surcharge proposal

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