A roundup of topics International Treasurer is investigating.
The passage yesterday of OTC derivatives reform legislation sponsored by Senator Blanche Lincoln set many bankers’—and corporate treasurers’—teeth on edge. The bill, approved by the Agriculture Committee, provides a limited exemption for corporate hedgers from its proposed exchange trading and central clearing requirements. But it would effectively force banks to split off their swaps business, or forego access to the Federal Reserve lending windows and Federal deposit insurance. How such a separation could be effected at commercial banking and derivatives giants like Citigroup and JPMorgan Chase without cratering the derivatives and capital markets in the process is a mystery. Also, the bill leaves the fate of FX swaps in limbo: it calls for them to be regulated like other derivatives, but gives the Treasury Department the authority to exempt them if it sees fit. The bill will come before the full Senate next week.
While the derivatives bill is seen as a significant threat to treasurers’ interests, perhaps a more proximate source of pain is the ongoing meltdown in Greece. The markets have given the proposed EC bailout of the country the thumbs down, and Moody’s this morning cut its credit rating. The targeted reduction in the country’s debt-to-GDP ratio is not seen as credible without structural reforms the government refuses to commit to, and the increase in taxes that would be required to meet the bailout plan goals would crush the already struggling economy. Overnight, the euro cratered and this morning its volatility has spiked, throwing a wrench in many hedging strategies.
Finally, the comments on the so-called Basel III liquidity and capital proposals are now available on the Bank for International Settlements’ web site. Many banks complain that the new criteria for assets used to meet liquidity benchmarks are too harsh and there are few kind words about the proposed capital requirements. US and European corporate treasury lobbies submitted comments arguing that the proposed rules will translate into wider spreads and less liquidity in the derivatives and capital markets.