Banks Win Again As Proposed "Toughened" Basel Derivatives Rule "Seems To Have Evaporated"

Tyler Durden's picture

Overnight, Bloomberg released its analysis of a Basel derivatives rule proposed last year according to which banks would be required to set aside more money in the event swaps making up the $693 trillion swaps market go bad. "And not just a little bit more -- as much as 92 times, or 9,100 percent, more, according to calculations by three banks shared with Bloomberg News. The higher costs in turn may cause market participants to flee rather than take advantage of the clearinghouses, making it more difficult for those third-party guarantors."

The toughened standards, hatched five years ago after derivative losses almost crashed the global economy, are meant to safeguard trades and bring more openness to a market whose secrecy and sheer size overwhelmed regulators in 2008. Where swaps had been one-on-one deals before, now they would be backstopped by third parties in clearinghouses that ensure everyone can pay, with the aim of avoiding emergency bailouts and panic.

Basically, all that was proposed was to increase the margin requirements on what many consider, accurately, to be the biggest ticking leverage time bomb, one where the failure of one counterparty would reverberate across the collateral chain with consequences far more dire than what happened to various shadow banking conduits after the Lehman collapse. Of course, even increasing the required capital would be powerless to halt a complete transmission freeze but at least it would give the optical impression that the derivatives market is more "stable."

This was promptly met with screams of terror from a financial sector which, despite all the rhetoric, is as undercapitalized as ever when taking into account the trillions in "off the books" shadow liabilities.

Bank advocates including the International Swaps and Derivatives Association Inc., a group representing the world’s largest banks, argued in a September letter to the Basel committee that its proposal was overkill and unfairly cost them too much money. The committee’s plan would “result in capital requirements that make clearing uneconomical,” the groups said.

Well, it should come as no surprise to anyone, that the banks won. As always. Moments ago Bloomberg released the follow up:

In a victory for banks, global financial regulators backed away from earlier guidelines that the firms had warned would destabilize the $693 trillion derivatives market.


The Basel Committee on Banking Supervision’s final rule, released today, will require banks that broker swaps trades to set aside much less money to protect against a default versus a proposal published last year. The plan now applies a minimum 20 percent risk weighting to money deposited at clearinghouses, which are third-party guarantors that back the transactions, down from 1,250 percent in the original proposal. The change takes effect on Jan. 1, 2017.

The punchline:

“They really had people spending a year thinking about it, and they reversed it. The banks should be very happy,” said Chris Cononico, president of GCSA LLC, a New York-based underwriter that’s seeking to insure derivatives clearinghouses. The proposed rule “seems to have evaporated,” he said.

Who are the winners:

The world’s largest derivatives brokers at the end of 2013 were owned by Goldman Sachs Group Inc., JPMorgan Chase & Co. (JPM), Newedge Group SA, Deutsche Bank AG (DBK), Morgan Stanley (MS) and the Merrill Lynch division of Bank of America Corp. (BAC), according to the U.S. Commodity Futures Trading Commission.

So from MF Global's "vaporized" commingled client assets to Basel's "evaporated" toughened derivatives rules, the banks are indeed "very happy."

And now back to perpetuation the illusion that the system is stable.

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Two-bits's picture

Isn't tomorrow the deadline for some US evaporation with the IMF?

Concentrated power has always been the enemy of liberty.'s picture

This is THE reason the printing has not stopped and will not stop until all confidence in paper is lost.


My math is a summary of the leverage from this article:


Tough Swap Standards Drive Up Trade Costs 92-Fold



Example 1:  $100,000,000 in notional value is “swapped” with only $14,750 put down (mostly for fees).  This is leverage of 677,966%!!!!!  The new rule would require $1,200,000 in margin to pay fees and the remainder serve as margin which is still leverage of $8,333%! 


And the bankers frame the argument that we will reduce GDP and cannot afford to leverage figures that are multiples of the value of the whole world combined, and this “punitive” regulation is 92 times more expensive for them…  They will also say that the Gross exposure of hundreds of trillions is Netted out by offsetting bets and hedge.  But the bets and hedges are placed with the same counterparties as the initial bets, so when a Lehman happens then all the Net exposure becomes Gross exposure and there’s not enough money in the world to cover it even with printing presses running full bore!



Buy gold while it's still being sold................


SoilMyselfRotten's picture

It was just an IMF misstatement. They should have called it the Basel Derivitives Initiative. We know the .01% have no rules.

Grande Tetons's picture

The arc of the moral universe is bending again. 

LawsofPhysics's picture

Well, that's a surprise....  NOT.

Roll the mother fucking guillotines, nothing changes otherwise.

prains's picture

Even if there were markedly stricter rules a back door clause would be buried in  the wording to allow any and all criminal behavior to continue unabated. It's a bankster world and until the entire industry is burnt to the ground they will never release their grip on our throat. The funniest part of all this is, we in fact don't need banks of this size at all.....


burn them to the ground

HardAssets's picture

The people of the world exist to serve the psychopath kleptocrat banksters. They are genetically superior because they steal on a vast scale, don't ya know.

HamRove's picture

I prefer jail myself.

Picture this. Your out living in the free air, doing what you do with no one to bother you.

And they are imprisoned for the rest of their parole, no bail, no way out. They get taken from their offices. No media coverage. Just gone.

Sent to a jail constructed in the middle of the Indian ocean with only a TV to watch for 1 hour a day. The video is of the people they were going to enslave living free without them, getting laid, eating steak and lobster, while they get day old bread and burnt popcorn.

You chop off their heads and they will be martyrs...

LawsofPhysics's picture

"You chop off their heads and they will be martyrs..." - not if done silently, as you suggest.  one day, they are simply gone.

waterhorse's picture

I vote for more nail gun accidents.  Some belt sander and ballpeen hammer accidents would be good too.

HardAssets's picture

"You chop off their heads and they will be martyrs . . . "

Martyrs to who ?  The Church of Satan ?

q99x2's picture

Arrest the Globalists and NWO.

BitCoin last price: 409.6900

Fonestar is not buying fast enough.

Dumpster Fire's picture

1250% to 20% whats not to like lol

pods's picture

Too convoluted to decipher.  Just how they like it.

"I don't understand what you're saying, but I have this uncomfortable full feeling in my backside."


Grande Tetons's picture

693 000 000 000 000.

I just had to type it out to see. Nope, that is nothing to get your panties in a twist over. 

lasvegaspersona's picture


you will soon need a few more

youngman's picture

And all those new Greek bonds are now sitting at the ECB at full is good for a banker...they are in control

Ban KKiller's picture

Trying to keep love in my heart but knowledge keeps this a challenge.

Death to fascists. Slogan, slow gun, from WWII. Apt today.

HamRove's picture


When have "RULES" ever stopped a banker from fleecing his flock.

Dragging their corporate, white collar, Yale educated ASS out of their office while tazering the shit out them and then hauling them to the County Jail and pairing them up with crazy MFers from Jersey for a few years?

That will change their ways pretty F-in Quick.

I must live in fantasy land......

SheepDog-One's picture

Boy, it's really obvious the Central Banksters really 'learned our lesson good this time...we'll never let this happen again if you just bail us out!' back in 2008. It's happening all over again, just on steroids and crystal meth this time!

Dr. Engali's picture

Is there anybody out there who expected any other outcome?...... Anybody?........ crickets. That's what I thought.

Ban KKiller's picture

I thought for a moment....then it passed like gas.

Al Huxley's picture

The whole premise of the system is based on a risk-free casino for the banks - perpetually made whole for shitty bets by their friends the CBs.  Bernanke said as much back in his famous 'helicopter' speech a decade ago, but everybody focused on the helicopter part and missed his important qualifying statements.  Prepare for endless fucking by your banker masters.

lasvegaspersona's picture

I must suspect that since derivatives are the mechanism for keeping the system in one piece and the Fed is almost certainly a main player, that any diruption could not be tolerated. 

Our complex system is full of land mines and IEDs , one WILL eventually be tripped. This is just like rolling up the windows on the Humvee.

EZYJET PILOT's picture

Bankers go rot in hell, you spawn of the devil.

economessed's picture

Give them more rope.  It's what they want.  Easier rules won't make the problem they have go away -- it just gives them a little more time to avoid the consequences of their accumulated decisions.  But the longer they defy gravity, the more severe and unmanageble the outcome they'll face.

Everyone has a plan until they get punched in the face.

Save_America1st's picture more time, folks...let's all say it together now:


You all know Ann "Crazy Eyea" Barnhardt was totally fucking right 2 years ago. 

JenkinsLane's picture

Dear everyone else,

Fuck you!



mobydick's picture






Unaudited, unregulated financial weapons of mass destruction.


Nobody will ever know how much shit we are in. The question is does anybody really want to know how much shit we are in? I doubt that  even these fucking bankers know how much shit they/we are in?