FIA and the International Swaps and Derivatives Association sent comments to the Federal Reserve Board of Governors today expressing serious concerns with proposed changes to the mandatory Banking Organization Systemic Risk Report form (FR Y-15) that would affect the treatment of client-cleared over-the-counter derivatives transactions for purposes of the capital surcharge (the G-SIB Surcharge) imposed on U.S. global systemically important banking organizations (G-SIBs).
The two associations said the proposal is a major policy change that could increase G-SIB Surcharge capital requirements by more than $10 billion in the aggregate unless G-SIBs exit or scale back their OTC derivatives central clearing businesses. They added that it could have a profoundly negative impact on end-users and cleared derivative markets. FIA and ISDA said these changes are entirely unwarranted and would increase risk in the U.S. financial system, and strongly urged the Board not to adopt the proposed changes.
FIA and ISDA also argued that the Board should not make major policy changes of this nature through revisions to an information reporting form, without an adequate explanation of the rationale for the changes and no description of their potential impact on G-SIBs, end-users, the cleared derivatives markets, or systemic stability. At a minimum, the Board should re-issue the proposal through a transparent rulemaking process that satisfies all of the applicable requirements of administrative law for changes of this nature, they said.