Asian banks review US ties, August 21, 2012
Cost will rise when tough new rules on derivatives come into force
SINGAPORE: Asian banks are reviewing relationships with their US counterparts to avoid being caught by tough new American rules on derivatives trading that are about to come into force.
From the start of next year, non-US banks that annually deal in at least US$8bil worth of products such as interest rate swaps with American counterparties are expected to be subject to new derivatives rules in the Dodd-Frank Act.
In practice that means they will need to register as swap dealers with US regulators and abide by their rules on capital requirements and risk management, all of which adds to costs.
“If I have the choice, I just don’t want to deal with a US person’,” said a treasury manager at a regional Asian bank.
This looks to be the trend – most countries look like they are going to take the approach of redoing their derivatives with non-U.S. banks to avoid the burdening paperwork & regulations of the Dodd-Frank Act, or simply using non-U.S. based derivatives exchanges. Same likely for FATCA – the approach appears to be sell U.S. source investments like bonds, rebuy needed bonds with countries like Canada, Germany, Norway, Chile, terminate accounts with U.S. persons, encourage import-export businesses to do business instead with non-U.S. based businesses to avoid the 30% withholding on payments – or some countries may charge a high premium fee to do this business. All of which translates to higher U.S. inflation, higher costs of doing business for U.S. businesses, capital flight out of the U.S., logistical difficulty in U.S. businesses doing business abroad, and overall slowing economic activity for the U.S.. To confirm this view of what is happening, one only has to look at financial career job websites and job websites of the consulting and advisory firms – hiring for these regulations is mostly in countries like the U.S. , UK, Switzerland so far it appears, this means there is not much development going on in other countries other than “assessment” teams and committees.