Regulatory capital is a mandatory cost of doing business.
It has the advantage of:
- Helping to safeguard global financial systems
- Protecting creditors
It has the disadvantage of:
- Tying up firms’ assets
- Reducing the amount of business that firms can conduct
- Increasing workload and cost
What can be done to reduce reportable exposure and regulatory capital requirements?
- Efficient application of netting under master agreements to reduce reportable exposure
- Efficient application of collateral to reduce reportable exposure under master agreements
- Netting / collateral enforceability flag management in systems that feed into regulatory capital calculations
- Efficient use of supporting legal opinions in respect of netting and collateral enforceability
- Proper use of contract data to fully understand the implications of key clauses that impact exposure and regulatory capital calculations
Case Studies
- We have helped Tier 1 and Tier 2 investment bank clients to reduce their regulatory capital by using a combination of our derivatives’ expertise, data management abilities and technology
- Conducted remediation exercises to ensure efficient use of netting of exposures under master agreements in order to reduce regulatory capital
- Conducted remediation exercises to ensure validation of collateral enforceability under master agreements in order to reduce calculation of exposure and regulatory capital
- Standardised jurisdiction based entity type taxonomies to aid the application of netting and validation of collateral enforceability