In a new letter and testimony submitted to the House Financial Service Committee, FIA continues to advocate for U.S. Congress to address the unintended consequences of post-crisis financial reforms that undermine the incentives and benefits of central clearing for derivatives. Today in Congress, members of the House Financial Services Committee held a hearing on legislation that would address this unfair treatment. The legislation, H.R. 4659, is necessary because, despite bipartisan calls for reform, U.S. implementation of the leverage ratio rule continues to suffer from a flawed and damaging approach to cleared derivatives. This approach harms farmers and manufacturers seeking to manage commodity price fluctuations, commercial firms wishing to lock in prices as they distribute goods, and pension funds using derivatives to enhance workers retirement benefits.
The letter, submitted to Chairman Luetkemeyer jointly by FIA, the Commodity Markets Council, CME Group and ICE, supports the legislation and reinforces the message that, as currently constructed, the leverage ratio does not allow an offset for exposure-reducing margin provided by clients for cleared derivatives. This inability to recognize offset for client initial margin increases the cost of client clearing and limits the amount of client clearing that banks will conduct.
In written testimony, FIA President and CEO Walt Lukken reiterated that enacting H.R 4659 will provide needed relief to end-users of derivatives who are facing rising costs and fewer choices in the cleared derivatives markets and will ensure that U.S. clearing banks can compete on a level playing field relative to their foreign competitors who are receiving an offset from their regulators.