The OTC Derivatives reforms after Global Financial Crisis include higher capital and margin requirement for bilateral traded OTC derivatives?
I have the followings questions:
- The higher capital requirement for non-central cleared OTC derivatives, what does it mean in general? my understanding is that, capital requirement depend on the exposure undertaken by the counterparty (THE HIGHER THE EXPOSURE, THE HIGHER THE CAPITAL)?
- If there is margin requirement (initial and variation margin) this will reduce capital requirement due to the reduction in the exposure undertaken?
- How does Basel III address the liquidity risk that may result in demand of high quality collateral due to mandatory CC and margin requirement for bilateral transactions?