Basel tweak may weaken counterparty hedging, industry warns
Proposed technical revision risks dissuading bespoke CDSs and guarantees covering derivatives exposures
Industry groups have warned that proposed changes to counterparty credit rules risk chilling a market for bespoke credit hedges of derivatives exposures, leaving banks without viable options for protection and potentially raising costs for uncollateralised clients.
In November, the Basel Committee on Banking Supervision asked for feedback on a proposal to correct what it sees as an inconsistency in current capital requirements for customised credit default swap (CDS) hedges and guarantees that
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