EU banks aim to block new counterparty risk guidance
Requirement to include exposure spikes linked to swap payments within EEPE models prompts blowback
European banks want regulators to rescind new guidance requiring them to set aside capital against fleeting exposure spikes that occur when cashflows are exchanged on interest rate swaps.
When a bank makes an interest payment on a swap, it immediately calls for variation margin from the client to reset its exposure to the trade. The collateral is usually delivered the following day, resulting in a brief period where the bank has an elevated level of counterparty exposure to the client. The
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