G20 to deal with weaknesses at clearing houses

LONDON (Reuters) - The Group of 20 leading economies is set to back action by regulators to ensure that clearing houses for securities can withstand market shocks. Clearing houses, which stand between two sides of a transaction, are set to grow sharply as more derivatives are channelled through them to increase transparency. Policymakers fear this is creating a new breed of risky players whose collapse would wreak havoc in markets. "We will identify and address gaps related to the resilience, recovery and resolution of central counterparties," G20 finance ministers and central bankers said in a draft communique prepared for a meeting under way in Washington. EU financial services chief Jonathan Hill told Reuters on Friday he will shortly set out how the 28-country bloc will legislate to handle failed clearing houses. The communique also signalled a willingness to crack down on risks in the growing asset management sector despite fierce push back from the industry. "We agree to recommend policy actions to address risks, including those emanating from asset management activities, if necessary," the communique said. The document said the G20 will study work from its regulatory task force, the Financial Stability Board, on whether more measures are needed to reduce misconduct in banking after lenders were fined billions of dollars for trying to rig interest rate and currency benchmarks. G20 leaders are expected to endorse at a summit later this year in Turkey a proposal forcing the world's 30 biggest banks to issue bonds that can be tapped to raise cash if they get into trouble, the communique said. Policymakers, especially in the EU, want markets to help raise more funds for companies to grow as banks rein in lending due to costlier capital requirements. The financial sector has said some of these capital requirements will have to be scaled back to encourage some forms of market based finance to expand, especially in Europe. The EU's Hill said on Friday he may tweak some global bank capital rules to this end, but the communique sounded a note of caution. The communique said the G20 will work to ensure that market based finance is able to "fulfil its growing role in supporting the real economy while the financial stability risks are subject to appropriate oversight and regulation". (Writing by Huw Jones; Editing by Susan Thomas and Keith Weir)