Macroeconomic impact assessment of OTC derivatives regulatory reforms

BIS Other  | 
26 August 2013

The OTC Derivatives Coordination Group (ODCG), comprised of the Chairs of the Basel Committee on Banking Supervision (BCBS), the Committee on the Global Financial System (CGFS), the Committee on Payment and Settlement Systems (CPSS), the Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO), set up the Macroeconomic Assessment Group on Derivatives (MAGD) to assess the macroeconomic effects of OTC derivatives regulatory reforms. The MAGD comprises financial and economic modelling experts from central banks and other authorities, chaired by Stephen Cecchetti, Economic Adviser of the Bank for International Settlements (BIS).

In its report, the MAGD focuses on the effects of (i) mandatory central clearing of standardised OTC derivatives, (ii) margin requirements for non-centrally-cleared OTC derivatives and (iii) bank capital requirements for derivatives-related exposures. In its preferred scenario, the group found economic benefits worth 0.16% of GDP per year from avoiding financial crises. It also found economic costs of 0.04% of GDP per year from institutions passing on the expense of holding more capital and collateral to the broader economy. This results in net benefits of 0.12% of GDP per year. These are estimates of the long-run consequences of the reforms, which are expected to apply once they have been fully implemented and had their full economic effects.

Press release: Macroeconomic impact assessment of OTC derivatives regulatory reforms