The swaps proposal issued by banking regulators on April 12 would raise a host of new issues for derivatives end users and their bank counterparties, including the need for companies to monitor their derivatives positions more closely and ensure they're able to post cash or collateral to handle unexpected events. The proposal could also lead to companies' having to manage more counterparty relationships, which would also be a concern for banks.
"Every treasurer must maintain sufficient credit to meet future demands," says Tom Deas, treasurer at chemical company FMC in Philadelphia and president of the National Association of Corporate Treasurers (NACT).
That means devoting resources to handle potential margin calls that could otherwise be used to grow the business. Companies currently value their derivatives exposures quarterly in preparation for their earnings reports. The proposal requires posting margin when predetermined thresholds are exceeded, and that means companies would probably have to track those values in as close to real time as possible so as not to be caught unaware when collateral is demanded.
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