FIA and ISDA Oppose Surcharge on Cleared Swaps
On Oct. 11, FIA and the International Swaps and Derivatives Association sent a letter to the Federal Reserve expressing "deep concerns" with proposed changes to the capital surcharge imposed on U.S. banking organizations that are determined to be "global systemically important banking organizations."
The proposed changes, which came to light when the Fed issued a notice of revisions to the FR Y-15 reporting form, would affect the treatment of client-cleared over-the-counter derivatives transactions. The two associations estimated that the proposed changes would increase the surcharge on the G-SIBs by more than $10 billion, and strongly urged the Fed not to adopt such a major change of policy change without going through the normal rulemaking process.
On Nov. 22, FIA and ISDA jointly filed a supplemental response to reinforce their opposition to the proposed changes. The response described the recent growth in client clearing; set forth data demonstrating the predominance of the agency clearing model; and explained how client clearing differs from “house” trading in cleared OTC derivatives.
"The proposal would substantially and unnecessarily increase the capital requirements attributable to client clearing for OTC derivatives, and thereby undermine U.S. banking organizations’ incentives to engage in client clearing," the associations said. "As a result, the proposal is counter to the post-crisis policy goals of incentivizing central clearing and ensuring that capital standards do not unnecessarily discourage or penalize central clearing."
