[LONDON] The European Union and the United States have agreed to recognize each other's derivatives rules to avoid punitive capital charges on banks, a source close to the talks said on Wednesday.
Both sides of the Atlantic are introducing reforms after the 2007-09 financial crisis highlighted how the hitherto opaque US$550 trillion sector for interest rate and credit default swaps accentuated uncertainty in rocky markets.
The bulk of derivatives are traded in New York and London but the EU and United States had been unable to accept each other's rules in order to avoid international banks, who handle most transactions, being burdened with overlapping requirements. "It's done," the source said on condition of anonymity.
Without the EU formally recognizing US rules as being equally strict or equivalent to European rules, banks in Europe using an American clearing house would have to hold more capital.