U.S. banking regulators revise treatment of variation margin
On Aug. 14, the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation jointly issued guidance regarding the regulatory capital treatment of variation margin on cleared derivatives. The guidance permits banks to treat variation margin as settlement payment rather than as collateral. This will have the effect of reducing potential future exposure, a key variable in the capital requirements on derivatives. The regulators noted that clearinghouses such as CME and LCH have amended their rulebooks in recent years to clarify the nature of variation margin and confirm that variation margin can be treated as a settlement payment.
