Open Board Meeting October 30, 2015

TL;DR

Implementing margin requirements and long-term debt proposals for systemic financial stability.

Transcript

CHAIR YELLEN. Good afternoon. I'd like to welcome our guests to the Federal Reserve as we consider two regulations that are designed to increase the resilience of our financial system. The first item before the Board today is a proposed rule that would increase the loss-absorbing capacity of systemically important U.S. bank holding companies and th... Read More

Key Insights

• 🛄 Margin requirements aim to reduce systemic risks and encourage central clearing of swaps.
• ❓ Internal models are used to assess initial margin accurately, subject to regulatory oversight and approval.
• 🖐️ Collateral types and segregation play critical roles in meeting the requirements efficiently.
• 👨‍🎨 Inter-affiliate swaps are treated differently under the proposal compared to foreign regulations, warranting further consideration.

Questions & Answers

Q: How do the proposed margin requirements incentivize central clearing of swaps?

The requirements impose higher initial margin on uncleared swaps, making central clearing more cost-effective.

Q: What factors determine the amount of collateral needed to satisfy the new requirements?

The collateral amount depends on factors like financing costs and the rate of return on collateral.

Q: How do internal models play a role in assessing initial margin magnitude?

Firms use internal models subject to regulatory oversight and approval to determine initial margin requirements accurately.

Q: Why are inter-affiliate swaps handled differently under the proposal compared to foreign regulations?

Foreign regulators may not impose requirements on inter-affiliate swaps, leading to differences in handling under the proposal.

Summary & Key Takeaways

• The proposals aim to increase financial system resilience by implementing margin and long-term debt requirements.

• The margin requirements are intended to reduce systemic risks and incentivize central clearing of swaps.

• Initial and variation margin rules, eligible collateral, segregation, and inter-affiliate swaps are key aspects of the proposals.