Now that more realistic timelines have been announced for implementation of non-cleared derivative margin reform, banks are focusing on how to re-shape their business operating models to allow derivative desks to remain commercially viable in the post-compliance world.
The most fundamental consequence of the rules for banks is the impact on the ongoing profitability of many business lines due to increased costs of doing business, particularly from the need to bear the cost of funding substantial IM requirements. When these are taken together with increased capital charges (across market risk, counterpart credit risk and liquidity risk) there is a material effect on the overall Return on Equity and headline profitability for many banks.
Nick Newport, Managing Director of risk management consultancy InteDelta, outlines the path which leading banks are taking in this area.
Within this paper we include a detailed table providing an outline of those areas of organisation and business process which will impacted by these regulations across: Front Office, Risk Management, Collateral Management, Operations, Legal, Finance and Treasury.
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