Pushing for break-clause capital relief
Banks are looking to get capital relief as a result of break clauses within derivatives contracts - but they will need to convince regulators first, argues Duncan Wood
Necessity is the mother of invention, they say, and for over-the-counter derivatives businesses right now, arguably the biggest need is to reduce the counterparty exposures on which Basel III’s new credit value adjustment (CVA) charge will be levied. So it’s no surprise that recent months have seen banks trying to build up the arsenal of risk mitigants at their disposal.
Break clauses could become one of these. They have long been used as a way of convincing banks’ in-house credit committees to
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