Banks and their customers could reduce risk, save billions of dollars and improve investment returns by optimizing their portfolios in the newly reformed interest rate derivatives market—all while reducing the risk in the system.

That’s the key finding of a new report, “Derivatives Clearing: The Next Chapter,” from market consultancy Greenwich Associates.  The report concluded that the global derivatives market has successfully navigated the transition to the new clearing framework established by regulators in the wake of the global financial crisis, and that the derivatives market is thriving today “because of, not in spite of, a slew of post-crisis legislation and regulation put in place over the past decade.”

The report also found that banks and their clients could wring billions of dollars of costs from their interest rate derivatives trading operations while reducing risk. These benefits can be achieved by banks and their derivatives customers better optimizing their swaps and futures holdings across clearinghouses—a process that would increase profits for banks and improve returns for investors.

“Optimizing a single dealer’s $10 trillion notional cleared derivatives portfolio could generate a reduction in capital requirements of $11.4 billion dollars,” said Kevin McPartland, Head of Market Structure and Technology Research at Greenwich Associates, and author of the new report. “Apply that estimate across the top 10 derivatives dealers in the world, and the benefits become impressively clear.”

Regulatory action, while not required, could also boost savings and reduce risk in the interest rate derivatives market. Every $100 million reduction in initial margin would result in a $30 million reduction in bank capital requirements and a $400,000 in fees to investors.

“Although regulators are increasingly likely to push through positive changes to capital rules, market participants are not and should not count on them to move their businesses forward, concludes Kevin McPartland. “Dealers must continue to optimize their portfolios to gain access to the billions of dollars in capital savings available under the new market structure.”