US bank capital proposals would increase capital requirements for client clearing by 80%

FIA estimates top six US clearing banks would need more than $7.2 billion in additional capital for derivatives clearing services

16 January 2024

Washington, DC – FIA strongly opposes provisions of two separate proposed rules put forward by US bank regulators that would dramatically increase capital requirements for derivatives clearing services that banks offer to their clients. Looking at just the six largest US banks that offer clearing, FIA estimates that these provisions would increase their capital requirements for client clearing by more than 80%.

If enacted as proposed, these rules would make it far more expensive for banks to provide their clients with clearing services for futures, options, and OTC derivatives. In turn, this could impair access to these instruments by a wide range of companies that use derivatives to hedge their risks or manage their investments. These companies include agricultural businesses, energy producers and public utilities, manufacturing and transportation companies, mortgage lenders, insurance companies, and pension funds.  The proposed rules also would 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.

FIA is troubled by the absence of any apparent cost-benefit analysis that considers these important negative impacts of the proposals on end users and on systemic stability. FIA urges the US bank regulators to fully consider and analyze these impacts before finalizing these rules.

“In the wake of the 2008 financial crisis, regulators recognized the need to move more of the derivatives markets into central clearing. They understood that central clearing is one of the most effective ways to make the financial system more stable and resilient when markets are in turmoil. That makes it all the more surprising that US bank regulators are ignoring one of the most important lessons of the financial crisis,” said Walt Lukken, CEO of FIA. 

“Policymakers should not disincentivize the very activity that makes the marketplace safer, reduces systemic risk, and protects taxpayers. The proposals being considered will drive up the cost of client clearing for end-users that rely on these products to manage risk. FIA calls on US bank regulators to carefully consider the impact these proposals will have on the cleared derivatives markets and the farmers, energy companies and pension funds that rely upon them to manage volatility.”  

FIA worked with its member firms to estimate the quantitative impact on the six banks that would be subject to both sets of the proposed increases in capital requirements. These six banks are deemed to be "global systemically important banks" or G-SIBs. They are also the largest providers of derivatives clearing services in the US. 

FIA’s quantitative impact study shows that the two proposals in combination would increase the capital required for those six banks to engage in client clearing activities by more than 80%. The G-SIB Surcharge Proposal’s changes to the treatment of client cleared OTC derivatives transactions would, on their own, increase the capital required to engage in client clearing activities by more than 58%. The Basel III Endgame Proposal, which would apply to both GSIB and non-GSIB banks, would increase the capital required to engage in client clearing activities by more than 22%. 

FIA filed comment letters today with the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency outlining its concerns with these US bank capital rule proposals – the Board’s G-SIB Surcharge Proposal and the joint Basel III Endgame Proposal. 

Read FIA's response to the joint Basel III Endgame Proposal.

Read FIA's response to the Board’s G-SIB Surcharge Proposal.

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