By David Henry

NEW YORK (Reuters), Wall Street analysts puzzle over how the new arcane derivatives rule might affect big banks’ performance in the final quarter.

This rule is just one among a number of regulatory measures that regulators have taken to dissuade banks from taking too many risks on the market for over-the-counter derivatives. These actions contributed significantly towards the financial crisis of 2007-2009.

This aims to increase the awareness of banks about counterparty risk posed by these trades in order to reduce their capital requirements.

The rule will be in full force January 1, after years of lobbying from the industry and refinement by regulators.

Citigroup Inc (NYSE:), Morgan Stanley (NYSE: Goldman Sachs Group Inc (NYSE:), has stated that they may have to maintain more capital. However, how much depends on the derivatives position and measures taken to decrease their exposures.

Analysts had largely ignored this rule until the recent warnings. Although they are trying to determine its effect, there is not enough data.

Steven Chubak, Wolfe Research’s director of research wrote that “it is almost impossible for us outsiders calculate the impact.”

Analysts expect that the change will eat into certain lenders’ capital levels. This raises questions about their ability to repurchase stock and how they plan to return equity.

The capital requirements of big banks have been increasing in recent years due to a surcharge to systemically important lenders as well as the U.S. Federal Reserve’s decision not to increase certain leverage limits. Ken Usdin (NYSE: Jefferies) analyst.

Usdin said that this makes derivatives rules more meaningful. He said that banks are closer than ever to meeting their minimum requirements.

This rule is known as the Standardized Approach for Measuring Counterparty Credit Risk (SA-CCR). It was first mentioned by Citigroup last week, when it was stated that the rule was the reason why the bank had stopped stock buybacks in this quarter.

Susan Roth Katzke, an analyst at the conference that made this announcement, was moved to participate in it. Credit Suisse (SIX) To reduce the earnings estimates and target prices for Citigroup shares.

After Bank of America Corp (NYSE 🙂 stated last year, analysts had forgotten all about it. They said that they had seen a modest improvement in a bank’s key capital ratio since implementing the rule earlier. The bank hasn’t indicated any plans to change that statement.

After Morgan Stanley’s October warning that it could reduce its 16% Common Equity Tier 1 capital rate by 1.2 percentage points, they began to pay closer attention.

Goldman Sachs stated the next day that it might see a reduction of 0.3 points in this equity buffer.

Citigroup indicated last week that it could have a 0.50- 0.60 point impact.

JPMorgan Chase & Co (NYSE:) has not said how it expects the rule to affect capital and declined to comment for this story.

Goldman Sachs Morgan Stanley, Citigroup and Citigroup all stated that they could mitigate the damage.

Banks can take measures to mitigate risk such as requesting extra collateral from their counterparties in order to ensure trades are secured, or by hedge.

However, banks have huge derivatives libraries with trillions of dollar worth contracts that are spread among different clearing houses and entities. This means that it is necessary to have accurate and current data as well as risk modeling in order to make these calculations.

“It is data intensive, so you’ve got to have your act together,” said Adam Gilbert, a PricewaterhouseCoopers partner specializing in financial regulation.

“Banks work at different rates on these matters,” he said.

Investors and analysts can’t see how banks handle that work.

As a result, banks are not required to disclose information about their exposure to higher-risk derivatives.

Chubak said that he had little information on the bank’s derivatives books.