EU confusion over cash collateral rules
Dealers want sovereign clients to start posting collateral in derivatives trades, but European Union reporting rules make that tricky. Raising funds to post collateral would have an impact on national debt figures – and the same is also true when receiving cash collateral.
First, the bad news: European countries may be misreporting or ignoring billions of euros of debt associated with their derivatives trades. Now, the good news: it’s not really debt.
According to Eurostat, the standard-setter for national statistics in the European Union, cash collateral posted to debt offices and other sovereign entities against derivatives counterparty exposures has to be reported as a loan and included in each country’s debt statistics.
Some countries, such as Belgium and the
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