Banks and money managers will need to post $480 billion in new collateral to back swaps processed by clearinghouses under the Dodd-Frank Act, according to a Morgan Stanley analysis.
The firms would need to post as much as $1.3 trillion and as little as $20 billion of so-called initial margin, analysts led by Tiffany Wilding wrote in a note to clients today. The demands will be mitigated by "unencumbered collateral" already at the firms, the fact that only new trades need to be cleared and that a range of assets from sovereign debt to corporate bonds can be used, they wrote.
Dodd-Frank requires most interest-rate, credit-default and other swaps to be processed by clearinghouses in an effort to cut counterparty risk after the $648 trillion privately negotiated market complicated efforts to resolve the financial crisis in 2008. Initial margin hasn't always been required on swaps trades outside clearinghouses.
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