The analysis identifies a causal effect of the leverage ratio requirements by comparing the reactions of clearing members who were subject to the introduction of the mandatory leverage ratio requirement in January 2016, and the subsequent change in reporting requirements, to the reactions of a control group of clearing members that were unaffected by these events. The results suggest that the affected clearing members became more reluctant to provide client clearing services after the events: compared to unaffected clearing members, they reduced both the number of transactions they were willing to clear on behalf of clients and their number of clients. In magnitude terms, they reacted to the January 2016 event by clearing on average 5% fewer transactions per client and operating with around 4-5 fewer clients on average than otherwise. This impact on clients seems to have been driven particularly by a reduced willingness to take on new clients. In contrast – visible in the overall increase in the number of clients shown in Chart A – clearing members unaffected by the leverage ratio on average increased their number of clients significantly. Chart A: Number of clients using Swapclear data  (a)  Source: Acosta-Smith, Ferrara, and Rodriguez-Tous (2018), ‘The impact of the leverage ratio on client clearing’, Bank of England Staff Working Paper No.735 (a) The chart shows the number of clients over time using data from LCH Swapclear. The vertical red line denotes the introduction of the frontloading mandatory central clearing requirement for category 2 firms.

Finally, institutional investors with longer-term liabilities would benefit from reduced currency risk by purchasing longer-term bonds denominated in their home currency. This would contribute towards diversifying risks arising from borrowing in foreign currencies, reducing the potential for systemic risk in the financial system. At this juncture, there is still much potential for improvement in the regional corporate bond markets. Certain countries have taken measures to develop their bond markets with varying degrees of progress with efforts focused on strengthening the market infrastructure, establishing benchmark yield curves, augmenting the number of issuances and new instruments, and further liberalizing markets to enhance foreign participation. This has resulted in the evolution in the roles played by commercial banks. In the process of developing corporate bond markets, commercial banks are becoming increasingly active as investment bankers, with roles as corporate advisors, major issuers, deal originators, underwriters, dealers, brokers and providers of a broad range of risk management and hedging instruments. Such an evolution follows the sequence in developing deeper, more active and increasingly integrated and competitive financial markets. In the pursuit to develop regional bond markets and options for raising capital, new mindsets of looking at regional and global capital markets and a broader range of tools in managing risk and hedging need to be adopted. In this environment regulators have directed efforts at increasing transparency, competition and strengthening the market and legal infrastructures. These efforts, coupled with Asia’s history of enterprise and value creation augurs well for Asia as a region.