Financial associations criticize Federal Reserve’s proposed rule

The Securities Industry and Financial Markets Association (SIFMA), the American Bankers Association (ABA), the Institute of International Bankers, and The Clearing House published a joint statement on Friday, addressing the Federal Reserve’s proposed rule to increase capital requirements on merchant banking and physical commodities.

“While we are still digesting the proposal on physical commodities and merchant banking issued by the Federal Reserve today, it is both inappropriate and unfortunate that it has proposed regulatory changes that are based upon wholly theoretical and unsubstantiated concerns, rather than actual facts, evidence, or historical experience,” the joint statement said. “More than 100 end-users have either submitted or joined other letters attesting that financial holding companies produce substantial public benefits including lower prices and greater market liquidity. By imposing unjustifiably higher capital on this important economic activity, end-users will ultimately pay the price, burdening business and hindering job creation, the formation of new businesses and economic growth.

The statement criticized the Federal Reserve for a lack of evidence of increased risk within the industry, and the absence of a cost-benefit analysis, noting that the proposal is inconsistent with the Federal Reserve’s historical views on similar issues.

“As with the report released two weeks ago by the Federal Reserve under Section 620 of Dodd-Frank, these recommendations are unjustified and would directly thwart Congress’s clearly expressed intent to permit these activities,” the statement said.