Two proposals for rule amendments – one under the surcharge framework for global systemically important banks (G-SIBs) and one known as the Basel III Endgame – could increase capital requirements for client clearing by more than 80 percent, claimed the Futures Industry Association (FIA). In a recently published response, the organisation expressed its objections to the proposals, stating that it was “troubled by the absence of any apparent cost-benefit analysis” on the part of US regulators.
According to a quantitative impact study conducted by FIA, the changes to the G-SIB surcharge framework would increase the capital required to engage in client clearing activities by more than 58 percent while Basel III Endgame could increase it by more than 22 percent.
Not a good idea
By making it more expensive for banks to provide clients with clearing services for futures, options, and OTC derivatives, these proposals could “impair access to these instruments by a wide range of companies that use derivatives to hedge their risks or manage their investments”, wrote FIA. It could also “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 a statement, FIA CEO Walt Lukken pointed out that the 2006 financial crisis has taught the industry the important role central clearing plays in maintaining stability and resilience in the system. “Policymakers should not disincentivise the very activity that makes the marketplace safer, reduces systemic risk, and protects taxpayers,” he said. In light of these concerns, the FIA urged regulators to “fully consider and analyse these impacts before finalising these rules”.