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April 11 (Bloomberg) -- In a victory for banks, global financial regulators backed away from earlier guidelines that the firms had warned would destabilize the $693 trillion derivatives market.

The Basel Committee on Banking Supervision’s final rule, released yesterday, will require banks that broker swaps trades to set aside much less money to protect against a default versus a proposal published last year. The plan now applies a minimum 20 percent risk weighting to money deposited at clearinghouses, down from 1,250 percent in the original proposal. The change takes effect on Jan. 1, 2017.

The prior proposal could have increased costs as much as 92 times, according to calculations by three banks shared with Bloomberg News. The original rule carried the risk that market participants would flee rather than take advantage of the clearinghouses, making it more difficult for them to safeguard the market.

Compliance Action

FCA to Investigate U.K. Bank Overdraft Costs as Clients Overpay

The British markets regulator will investigate how banks set and monitor fees for customers who exceed overdraft limits, after finding that many pay too much.

The U.K. Financial Conduct Authority is starting the review into the 8 billion-pound ($13.4 billion) industry after it gained oversight of 50,000 consumer credit firms last week. If the FCA finds that banks aren’t charging clients fairly, it could implement new restrictions limiting how much lenders can make.

HSBC Holdings Plc, Royal Bank of Scotland Group Plc and six other U.K. lenders waged a years-long legal challenge against a U.K. antitrust regulator over the fees, prevailing in 2009 with a ruling that the fees were subject to laws regulating unfair terms in consumer contracts.

EU Close to Ending Alpha and Piraeus Bank Probes, Almunia Said

European Union regulators are close to completing approval for Greek government bailouts to Alpha Bank AE and Piraeus Bank SA, the EU’s antitrust chief, Joaquin Almunia, said to reporters in Athens yesterday.

Almunia said final EU approval for Greek government aid to the two banks had to wait for capital increases. The government has conducted probes of Greek banks relating to their capitalizations.

Almunia also said the EU “will be very attentive” that “banks return to lend to the real economy” in its review of Greek restructuring plans. The EU must approve banks’ restructuring as a condition for receiving state aid.

Wall Street Bond Trading, Allocation Draws Scrutiny from Finra

The Financial Industry Regulatory Authority is examining whether Wall Street firms overcharge investors on some bond trades and whether they unfairly allocate new corporate debt issues to reward certain clients.

Richard Ketchum, the chairman and chief executive officer of Wall Street’s self-regulator, said Finra is looking at trading data to see if brokers sometimes earn unusually large profits on bond trades, according to a report in the Wall Street Journal. The investigation could lead to enforcement action or an instruction to reduce the spread between buying and selling prices, the report said. Nancy Condon, a spokeswoman for Finra, confirmed the report in an e-mail.

In matched trades, where banks and other dealers join a buyer to a seller, profits of more than 1.5 percent to 2 percent would be “questionable,” Ketchum said, according to the newspaper’s account of the interview.

Finra is also working with the Securities and Exchange Commission to examine whether underwriters give the largest portions of new debt issues to their biggest customers, according to the report. That could allow the buyers to make a quick profit by selling them at a higher price to investors shut out of the initial deal.


Dimon Says Banks to Gain as Crisis-Era Rules Hurt Cities, Poor

Hedge funds, low-income borrowers and municipalities face steeper costs from global rules enacted after the financial crisis as banks stand to benefit, said JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon.

Clients seeking derivatives, short-term deposits, revolving credit, trade finance and retail mortgages will be disproportionately affected by higher banking costs, Dimon, 58, said April 9 in his annual letter to shareholders.

Lenders are grappling with new regulations designed to prevent blowups by forcing companies to hold more capital, limit risky bets and move derivatives to public exchanges. The outlines of the new global regime will take shape this year, forcing some firms to make “drastic changes” to businesses, said Dimon.

Hedge funds and payday lenders are among firms with affected products; they lack a broad array of banking relationships to help defray higher costs. As banks increase prices or exit products, some clients will be drawn to the so-called shadow banking system, Dimon wrote. Regulators should, and will, be looking at all financial companies, he wrote.

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To contact the reporter on this story: Carla Main in New York at

To contact the editors responsible for this story: Michael Hytha at Stephen Farr

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