U.S. Rep. Zach Nunn (R-IA) and U. S. Sen. Jerry Moran (R-KS) are leading an effort to caution federal regulators on how they believe the new proposed capital requirements on banks would impact the agriculture and energy industries.
In a letter to officials with the Federal Reserve, Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corp. (FDIC), the lawmakers cited concerns that the GSIB surcharge proposal and the new capital requirements for large banks will generate disincentives for risk management strategies and drive up the cost of hedging for end-users.
As a result, they said that consumers will pay the price in the form of higher prices at the grocery store and the gas station.
“When farmers, ranchers, or other end users enter into futures or other centrally cleared derivatives contracts to mitigate the risk they face from fluctuating commodity prices, they generally initiate the trade through a Futures Commission Merchant (FCM) registered with the CFTC,” the lawmakers wrote in the letter. “FCMs provide market access to their clients through memberships at regulated derivatives exchanges and clearinghouses, and the vast majority of FCMs today are banks that will be subject to the proposals. Increasing regulatory capital charges for banks that provide end-users with access to these hedging markets and risk management tools is a misguided approach.”
Along with Nunn and Moran, the letter was signed by some 31 other members of Congress.
Their effort is supported by the American Farm Bureau Federation, National Milk Producers Federation, Louis Dreyfus Company, Commodity Markets Council, American Cotton Shippers Association, Futures Industry Association, International Swap Dealers Association, National Grain and Feed Association, and the National Futures Association.