The Futures Industry Association (FIA) voiced its opposition to proposed rules by federal bank regulators that would increase capital requirements for derivatives clearing services that banks offer to their clients.
Based on just the six largest U.S. banks that offer clearing, FIA estimates that these provisions would increase their capital requirements for client clearing by more than 80 percent. These six banks are all deemed to be “global systemically investment banks” or GSIBs.
In turn, FIA added, the rules would make it more expensive for banks to provide their clients with clearing services for futures, options, and OTC derivatives. As a result, it could impair access to these instruments from a wide range of companies that use derivatives to hedge their risks or manage their investments.
Further, said FIA officials, the proposed rules also would have the unintended consequence of increasing systemic risk by reducing the capacity to move customer positions out of a clearing firm in case that firm goes bankrupt.
“In the wake of the 2008 financial crisis, regulators recognized the need to move more of the derivatives markets into central clearing. They understood that central clearing is one of the most effective ways to make the financial system more stable and resilient when markets are in turmoil. That makes it all the more surprising that US bank regulators are ignoring one of the most important lessons of the financial crisis,” Walt Lukken, CEO of FIA, said.
FIA also cited the absence of a cost-benefit analysis that considers the negative impacts of the proposals on end users and on systemic stability.
“Policymakers should not disincentivize the very activity that makes the marketplace safer, reduces systemic risk, and protects taxpayers. The proposals being considered will drive up the cost of client clearing for end-users that rely on these products to manage risk. FIA calls on US bank regulators to carefully consider the impact these proposals will have on the cleared derivatives markets and the farmers, energy companies and pension funds that rely upon them to manage volatility,” Lukken added.
FIA submitted comment letters to the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency outlining its concerns with these US bank capital rule proposals. The association urges the US bank regulators to fully consider and analyze these impacts before finalizing these rules.