ISDA Proposes To "Suspend" Default Reality When Big Banks Fail

Tyler Durden's picture

With global financial company stock prices soaring, analysts proclaiming holding bank shares is a win-win on rates, NIM, growth, and "fortress balance sheets", and a European stress-test forthcoming that will 'prove' how great banks really are; the question one is forced to ask, given the ruling below, is "Why is ISDA so worried about derivatives-based systemic risk?"


As DailyLead reports,

...regulators from the U.S., U.K., Germany and Switzerland have asked ISDA to include a short-term suspension of early-termination rights in its master agreement when it comes to bank resolutions. Many derivatives market participants oppose the move.


The regulators say the suspension, preferably no more than 48 hours, gives resolution officials time to switch derivatives contracts to a third party or bridging entity, when necessary.


We are sure that creditors will be 'fine' with this.. and that banks will not use this loophole to hive off all their 'assets' into a derivative vehicle protected 'temporarily' from the effects of a bankruptcy...

So the question is - what are they so worried about?

ISDA Statement on Letter from Major Resolution Authorities

NEW YORK, November 6, 2013 – The International Swaps and Derivatives Association, Inc. (ISDA) today issued the following statement:


ISDA supports efforts to create a more robust financial system and reduce systemic risk.  Toward that end, we have, over the course of 2013, discussed with policymakers and OTC derivatives market participants issues related to the early termination of OTC derivatives contracts following the commencement of an insolvency or resolution action. We have developed and shared papers that explore several alternatives for achieving a suspension of early termination rights in such situations.


"One of those alternatives, which is supported by a number of key global policymakers and regulatory authorities, would be to amend ISDA derivatives documentation to include a standard provision in which counterparties agree to a short-term suspension.  Developing such a provision that could be used by counterparties will continue to be a primary focus of our efforts in this important area of regulatory reform.  We are committed to working with supervisors and regulators around the world to achieve an appropriate solution that will contribute to safe, efficient markets.”

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pods's picture

Lemme guess, something that is going to help the big banks at our expense?


cougar_w's picture

I'm not saying it's systemic risk -- but yeah it really is systemic risk.

NoDebt's picture

THANK GOD, there will never be counter-party risk with any of those TRILLIONS OF DOLLARS of contracts again.  Original party goes bust?  So what?  We'll find somebody else to pick them up for you!  When we run out of banks willing to take them on, we'll FORCE somebody to take them on and then immediately bail them out with taxpayer money so you get paid.

So, basically, FDIC-insured private contract swaps.  Wonderful.  Bravo, gentlemen.  That's noble work you're doing up there in your ivory towers.

knukles's picture

Well fuck me....
The rules get changed once again to fuck over the end user ...

There are no rule, morals, credibility anymore.
The laws are for the wealthy financial enablers of the political ruling class.

Sound familiar, historically?

Cicero used to bitch about this, forecasting the demise of the state...


And why are the regulators interfering with private contracts which have yet to be regulated in any meaningful way...
How about cleaning up some of the other markets, first... Interest Rates, Libor, Gold, Silver, Commodities Warehousing, mortgage origination, collateralize anythings, competition and concentration (all over legal limits), audit the Fed, money laundering...

How's about some real action where it counts.
Oh, excuse me, the campaign contributions already "counts"

Grifter's picture

I apologize for attaching to you, knukles...but this is for you, Cougar_W:

Stackers's picture

So when do the rest of us get a "Pause" and "Do Over" button for our lives ?

Bangin7GramRocks's picture

Gee, what a surprise! They aren't going to let $60 trillion in useless gambling products plunge the world back into the dark ages. Anyone who thinks they won't keep changing the rules to maintain the status quo is a fool.

The Alarmist's picture

Kabuki.  They don't need to actually care, they just need to look like they care.

You can buy all the insurance you want, but you will never be able to use it.


illyia's picture

They do not have to look like they care. They just have to read the words and MSM mouth-pieces frame it as if it sounded like they really cared. But they do not look like they care. They look like they are lying.

They look like they are faking sincerity.

Tipping point will be reached.

Silver Bully's picture

'Tipping point will be reached.'

Of course it will. The $64 trillion dollar question is WHEN?

It took one man being sacked from his position of power, Jacque Necker, to spark the French Revolution. But look at how long it took, and the circumstances that were required to get there!

Likewise, how much pressure does the every day American have to endure before their invisible line in the sand gets crossed? How long until they say 'Enough!' and march INTO the White House, and not just down Pennsylvania Ave with picket signs?

I doubt an overnight change, such as hyperinflation, will cause a revolution. It has to be sustained misery, on a national scale, for an extended period of years before the masses say 'Enough!' and are ready to hang financiers from flagpoles.Right now, everyone can eat, watch flat screens, and surf the internet, even those on welfare and foodstamps.

No, I think this is going to take a while, perhaps another generation or longer.

RafterManFMJ's picture

You can buy all the insurance you want, but you will never be able to use it


Why, it's just like Oblamy Care!


DeadFred's picture

Always remember that Nixon's decision to thwart speculators by taking the US off the gold standard was also temporary...

StychoKiller's picture

All right, CalvinBall lives!

Racer's picture

The banksters have suspended reality for a long time already!

outamyeffinway's picture

What is this "reality" you speak of? I have heard of it, but have never seen it...

TORNasunder's picture

No kidding... makes you wonder what 'reality' is.

Time for the red pill.

InTheLandOfTheBlind's picture

who's worried?  all is well with the cosmos

bagehot99's picture

I keep walking around this casino, and thinking 'it's rigged'. I can't shake off this silly paranoia.

As though anybody would or could rig the derivatives market!!

buzzsaw99's picture

Dick Pickel is a turgid proponent of robust bank fuckery.

RaceToTheBottom's picture

When a debased accounting can't keep the numbers in the green, you have a large problem. 

When you remove common sense laws because a criminal bankster holds a derivative in your face and says Mr US Government, I am sorry but it is going to blow unless you bail me out, you are dealing with terrorists.


Terrorist should only be dealt with one way. 

You could solve the deficit by selling the bullets with which you should administer justice.

vote_libertarian_party's picture buy buy?

SimMaker's picture

"Turn those machines back on..........TURN THOSE MACHINES BACK ON!!!"


"Ok, as its you........we will, just for a couple days though, ok??"..........





B2u's picture Here's the clip....TURN THOSE MACHINES BACK ON....



SimMaker's picture

I think the most accurate part of the clip, is when his brother falls to his possible death due to a heart attack.........the other brothers response......."FUCK HIM!".......pretty much sums up the morals of the shit stains (I refuse to call them ellites)* that run these places.

*Somehow I manged to land a job at a very large and quite famous software firm some 15 or so years ago. I am self trained in my field. As I was introduced to the various Drs, PHds, Bachelor and Master degree holders, I actually felt like throwing up, I felt so out of my league. Long story short, within a year I and another self trained exployee were carrying our departments work on our backs, the "Elites" had totally failed and spent all their  time talking about how to hang on to their jobs which were obviously under threat. "We" got the work done, ended up recieving several quite famous industry awards, and since then have always been in demand by some of the most famous users of SimTech one can name......the "Elites" have been reduced to living at home with their mothers, setting up feeble websites offering their pathetic skills, working on dead end projects.......

Elites? My, please, lets not call them that.  The Wizard was right, it's just a piecce of paper and prooves nothing about the individual.

falak pema's picture

but 2014 will be a banner year! 

Why worry, don't worry, let your fears drown with fuku junk in Pacific.


Withdrawn Sanction's picture

'tis but a mere 48 hour "suspension."

Nearly 1/4 of a quadrillion dollars of notional exposure at just 4 US banks (acc. to FDIC data).  JPM, BAC, C, and GS.  What could possibly go wrong when that much risk is so heavily concentrated in one place?  These guys know what they're doing, right?  After all, they're masters of the universe.  ...twits.

Or to put it differently, EVERYONE cant expect to play a martingale strategy successfully.

Squid-puppets a-go-go's picture

as if this suspension will really change anything. You think when the crash hits that this measure will be enough to prevent the global freeze of all accounts? we were 2 hours away from that in 2008 according to fed minutes.

when the banks stop trusting each other, they stop trusting. you can hide that from the public, but not from the inner circles in the banks themselves

Dre4dwolf's picture

The problem is by the words "reducing systemic risk" they do not mean reforming the banking system to make it safer , more stable and sensible, they mean "when it fails, and it will, we will just steal the wealth of honest hard working americans to bailiout criminal banker enterprises to protect the status quo"


Thats not "reducing systemic risk" thats making the wrong people pay for the mistakes that were made and rewarding the morons who caused the disaster.

Your not lowering the chances of the risky event.... your meerly redirecting the harm away from bankers and onto poor Americans.


Take your criminal treasonous double speak somewhere else.

Winston Churchill's picture

Its good to be King.

Now shut up serfs.

N2OJoe's picture

@ Dre4dwolf

It isnt just "not reducing" systemic risk, it's enoucraging it as the people creating the risk know that if they win, they win and if they lose, they get bailed out.

debtor of last resort's picture

Roll over Beethoven. That new loan includes the intrest for the next 30 years.

29.5 hours's picture



I am totally in favor of the ISDA's earnest effort to make trillions of dollars of martingale piles of bets as safe as vanilla pudding. While they are at it, they can go after the real evil-doers -- traders who frequent chat rooms...

Banks weigh banning chat rooms after rigging probe



Alcuin Bramerton's picture

Can it be true that two or three major US banks now have nearly 50% of their assets in the form of naked written put options on the CHF?

Kirk2NCC1701's picture

If you were a good football coach, you'd go with the successful TD play every time, if their Defense cannot stop you.

So it is in the wild West of criminal Central Bankstering:  NOTHING will change until the MF'ing Guillotines roll.  Or the BRIC+ finally say Fuck You Fed!

Plan, invest and hedge accordingly.  Just be aware that The End is ALWAYS further out than expected.  The patient is in the hospital, but not yet in the ICU or ER.

buzlightening's picture

Interest rate swaps have killed the all in bankster gangsters in conjunction with the fed.  The fed has lost control and it's shoveling the truth; rankest sewage down to the bottom of the cesspool before the ponzi system implodes now.  I'd thought the control had been lost and now this is one more red flag on top of many others screaming the end game is very near. 

firstdivision's picture

Oh, you mean there's far more assets promised as collateral/for sale than actual assets available globally?!?! Color me shocked. This is a sign the system is about to collapse.

shovelhead's picture

There will be no credit events...


We have suckers out there waiting.


And if we have to, we'll make some.

The Alarmist's picture

So I could write a CDS on the entire $250T or so of bank exposure, pocket a few billions in premiums and walk away ... Sweet!

jim249's picture

So if I understand this right, if I hold a derivitives contract with a bank with early termination rights and the bank fails I have to wait 48 hours before the contract could be cashed in? Is this retroactive or only for new contacts?

worldofdebt's picture

It's a crazy WORLD OF DEBT!! 


udaman's picture

If Joe six pack understood any of this, there would be a riot......
But that will never happen, by design.
Death to all "elites"!!!

malek's picture

 asked ISDA to include a short-term suspension of early-termination rights

They surely mean "short-term" as in "forever"