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By David Henry
NEW YORK, March 10 (Reuters) - A group of nine global banks
and investment management companies said on Tuesday that 10 more
institutions have joined their push for regulators to require
for-profit derivatives clearinghouses to put up more capital
against cascading losses that might rock the world financial
system.
The announcement is another attempt to break a years-long
stalemate between the clearinghouse and their customers over how
much capital each should have ready to quickly absorb gigantic
losses from traders going bust.
Representatives of the group said the drive to expand the
coalition started before the current market turmoil. But the
announcement raises timely questions about the ability of part
of the financial system to hold up under extreme stress.
Strengthening rules to ensure clearinghouses could be wound
down safely may be the most significant unfinished work on
reforms started after the 2008 financial crisis, regulators have
said.
Without much success, JPMorgan Chase & Co, the
biggest U.S. bank by assets, has been persistent in calling for
clearinghouses to shoulder more risk, warning that they
currently have too little incentive to protect against defaults,
operational failures and cyber attacks.
JPMorgan issued papers making its case in 2014 and 2017.
In October it was joined by eight other firms,
including units of Allianz, BlackRock Inc and
Citigroup Inc in posting a new paper. That paper has now
been signed by 10 more firms, including units of ABN Amro Bank
, Barclays Plc, Commonwealth Bank of Australia
, Deutsche Bank, Franklin Resources
and UBS Group AG
After the October paper came out executives of clearinghouse
operator CME Group Inc said they had told regulators
they were concerned about the group's agenda.
Clearinghouses say banks, sometimes known as member firms,
and their investment fund customers need to have their capital
at risk as incentives to limit risky trading.
After the financial crisis, global regulators put
clearinghouses at the center of trading in over-the-counter
credit derivatives and interest rate swaps.
The clearinghouses, also known as central counterparties,
stand between both sides of trades and ensure their completion
even if one side fails.
Since the changes, central clearing of derivatives has taken
off, European Central Bank board member Fabio Panetta said in a
speech last month in which he lamented the "stalemate" between
the two camps.
Companies that clear credit default swaps or interest rate
swaps include units of Intercontinental Exchange Inc and
the London Stock Exchange Group, as well as CME Group.
(Reporting by David Henry in New York. Additional reporting by
John McCrank. Editing by Steve Orlofsky)
