FIA gives remarks on bank capital proposals at CFTC meeting

Wide range of end-users and financial market utilities voice concerns  

13 February 2024

Washington, DC – On 13 February, FIA will provide remarks to the Commodity Futures Trading Commission's Energy and Environmental Markets Advisory Committee highlighting the impact that pending US bank capital proposals will have on the cleared derivatives markets. 

Jackie Mesa, FIA’s Chief Operating Officer & Senior Vice President of Global Policy, will emphasize that the pending US bank capital proposals will significantly increase the capital requirements for banks that offer client clearing services to customers, including energy, agriculture, and other end-user firms that seek to manage commercial risk.  

In a comment letter recently submitted to the US banking regulators, FIA estimated that the two pending US bank capital proposals would result in an 80% increase in the capital required for client clearing services offered by the six US banks subject to both proposals. FIA warned that the proposals would have the effect of driving up the cost of clearing and discourage end-users from using derivatives to hedge their risks.  

While the pending proposals will only impact clearing firms that are subsidiaries of banks, they come at a time when the industry has experienced a consolidation in the number of both bank and nonbank clearing firms – reducing the options for end-users seeking access to cleared derivatives markets.  

End-users share the same concerns as FIA 

The American Council on Renewable Energy noted in their formal comment letter about the proposals that the “…the new framework for market risk proposals and the additive requirements for derivative transactions could significantly raise the costs for U.S. companies to hedge their business and operating risks.” 

The American Public Power Association and National Rural Electric Cooperative Association noted in their formal comment letter about the proposals that “…we are concerned that the Proposed Rule will make effective risk management more difficult and more expensive for commercial end-users in the energy industry, including our members, without materially improving risk management for the banking sector.”  

Five energy focused trade associations filed a joint formal comment letter about the proposals noting concerns that the “…proposals include several provisions that will make it much more expensive for banks to clear derivatives for their clients” and that they “are concerned that this increase in costs will negatively impact our ability to use derivatives to manage our risks.” 

Background on the CFTC EEMAC 

The CFTC's Energy and Environmental Markets Advisory Committee is a statutorily mandated advisory committee that serves as a vehicle for discussion and communication on matters of concern to exchanges, firms, end users, and regulators regarding energy and environmental markets and their regulation by the CFTC. More information about the committee is available here

FIA is the leading global trade organization for the futures, options and centrally cleared derivatives markets, with offices in Brussels, London, Singapore and Washington, D.C. FIA’s membership includes clearing firms, exchanges, clearinghouses, trading firms and commodities specialists from 50 countries as well as technology vendors, law firms and other professional service providers. FIA’s mission is to: support open, transparent and competitive markets; protect and enhance the integrity of the financial system; and promote high standards of professional conduct. As the principal members of derivatives clearinghouses worldwide, FIA’s clearing firm members play a critical role in the reduction of systemic risk in global financial markets 

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