Bank capital regulation and derivatives clearing

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 15 June 2018

Staff Working Paper No. 735

By Jonathan Acosta-Smith, Gerardo Ferrara and Francesc Rodriguez-Tous

As part of the post global financial crisis reforms, regulators introduced a leverage ratio requirement, a minimum capital requirement over a bank’s total exposures. We assess the consequences of this requirement for derivative clearing services to clients, which creates exposures for the dealers, by exploiting its earlier introduction in the United Kingdom and detailed confidential transaction and portfolio data. UK dealers reduce their client clearing business following the introduction of the requirement, particularly dealers with lower capital positions and for longer‑term derivatives; they are also more likely to end client relationships. Capital regulation might indirectly limit access to clearing services.

This version was updated in April 2022.

Bank capital regulation and derivatives clearing