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Template:M intro crr regulatory margin: Difference between revisions
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Template:M intro crr regulatory margin (view source)
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# Large, interconnected institutions are intrinsically dangerous. [[Horcrux]] alert: [[Lehman Brothers]]. Cognitive dissonance alert: There is no larger, more interconnected financial institution than a central clearinghouse. | # Large, interconnected institutions are intrinsically dangerous. [[Horcrux]] alert: [[Lehman Brothers]]. Cognitive dissonance alert: There is no larger, more interconnected financial institution than a central clearinghouse. | ||
#There is a form-over-substance assumption here: that what matters is the format of a financial instrument and not its economic effect. There is nothing intrinsically dangerous about the ISDA format, nor an over-the-counter transaction: customers lend to banks (in the form of deposits) and banks lend to customers (in the form of loans) over the counter all the time. No one is suggesting margining those transactions. | #There is a form-over-substance assumption here: that what matters is the format of a financial instrument and not its economic effect. There is nothing intrinsically dangerous about the ISDA format, nor an over-the-counter transaction: customers lend to banks (in the form of deposits) and banks lend to customers (in the form of loans) over the counter all the time. No one is suggesting margining those transactions. | ||
Posting [[variation margin]] to customers may reduce the credit risk proposed by banks, but also reduce their available liquidity in terms of “high-quality liquid assets” available to meet liquidity calls in stress scenarios. This may affect their LCR and their ability to meet their payment obligations in stress | |||