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US - American regulators revise capital treatment for variation margin

18/01/2018

On August 14th, the Federal Reserve, the Office for the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) issued new guidance regarding the regulatory capital treatment of variation margin on cleared derivatives.

On August 14th, the Federal Reserve, the Office for the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) issued new guidance regarding the regulatory capital treatment of variation margin on cleared derivatives.

The guidance says regulators will treat variation margin for centrally cleared derivatives contracts as a settlement payment rather than as collateral, but only if the counterparty treats it that way. The payment must, for example, settle any outstanding exposure on the contract until the next payment is made. That could ease capital requirements for many banks by changing the treatment of daily payments under centrally cleared derivatives contracts.