EC bank reforms would leave lenders unable to hedge
European proposal limits risk management tools to clearable swaps only, preventing options-based hedges
Banks split up by a new European proposal would not be able to hedge common exposures such as mortgage prepayment risk because of limits placed on the derivatives they can use, dealers are warning.
The rules, proposed by the European Commission (EC) on January 29, give national authorities the power to push some trading activities out of a banking group under certain conditions. The bank left behind in this separation would only be allowed to use cleared swaps for both risk management and client
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