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.
Explore our data
Readers of Risk Quantum now have access to some of the datasets that sit behind our stories – not just the segment of data that is the focus for the story, but the full time series, for the full population of covered firms. Readers can choose the institutions they want to look at, the metrics they are interested in, and download the data in CSV format to run their own comparisons and build their own charts. Risk and capital managers told us it would be helpful for internal reporting and benchmarking, but we figured many of our readers might get something out of it.
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.
Get in touch
Like Risk Quantum? Sign up for free to our daily newsletter and check @RiskQuantum for the latest updates.
If you have any thoughts on our latest analysis or want to suggest other ways to present and analyse the data, you can email us.
Tell me more
Citi propels G-Sibs’ OTC derivatives notionals to nine-year high
Most G-Sib indicators hit all-time highs in tumultuous 2022
Rate of cleared OTC derivatives rises at European banks
Fed throws curveball with agency clearing surcharge proposal
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Risk Quantum
Consolidation of Arval exposures adds €20bn to BNP Paribas’ RWAs
Bank shifts exposures from soon-to-be retired equity IRB treatment to standardised approach
Russian loan liquidation lifts RBI’s risk density
Cash parked at sanctioned central bank carries higher capital requirements than original loans
CCPs’ skin in the game drops to historic low
Clearing members bear increasing load, analysis of 15 clearing houses shows
StanChart’s market RWAs hit eight-year high
Client-driven RWA deployment raises market risk exposure by $3.2 billion
Valley National sees surge in delinquent CRE loans in Q3
Bank’s net charge-off rate more than doubles as $114 million in CRE loans become past due
UBS logs three VAR breaches on legacy Credit Suisse positions
Bank risks higher capital charges amid market volatility and exit-related costs
HSBC’s China CRE provisions surge to cover one-fourth of book
Additional reserves and reduced exposure elevate ECL coverage for mainland portfolio
Breaking market norms, tri-party repo rates plunge for fringe collateral
Yields hierarchy upended as cost of repo-ing equities and other volatile securities falls over a percentage point below UST repos