Banks are increasing blaming stricter regulation that require them to maintain higher capital for their exposure is sucking liquidity out of the market.
- According to Bank of International Settlements (BIS) semiannual survey notional amount outstanding has declined $629 trillion at end of 2014 to $553 trillion at end of June, market value of outstanding derivatives declined from $20.9 trillion to $15.5 trillion by end of June.
Participants have been complaining of lack of liquidity in the bond market and warned against serious disruption as and when rates will start rising.
Post-December, rate hike by US Federal Reserve is likely to test the waters.
FED has now proposed to new rules for the banks, which might lead to additional exposure reduction, as banks could have $120 billion capital hole in their balance sheet.


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