13 February 2015

Wall Street Journal: New rules on bank capital, swaps clearing set to clash

Commodity Futures Trading Commission Chairman Timothy Massad, testifying on Capitol Hill, said he is concerned the rule would make it more expensive for banks to route swaps through clearinghouses, hindering a Dodd-Frank mandate that most swaps be cleared. Clearinghouses, the market plumbing seen as a key safety procedure for the financial system, take fees to guarantee swaps. At issue is the “supplementary leverage ratio” rule that the Federal Reserve and two other banking regulators completed in 2013, requiring bank holding companies and their bank subsidiaries to significantly increase the amount of capital they hold as protection against every loan, investment, building, security and other asset on their books, not just the risky ones. Compliance with the rule isn’t required until 2018.

Under the rule, the margins that banks hold for customers on their cleared swaps transactions would count as assets on a bank’s balance sheet, Mr Massad said. As a result, banks would have to hold more capital against the margin, even though it is “legally segregated” and banks can’t touch the cash. “Cash margin isn’t really of the same nature as an asset of the bank,” Mr Massad told reporters after the hearing. “Should it really be treated the same way?”

The criticism could fuel concerns among lawmakers and others that regulators are piling on too many new rules without thinking through how they interact and what their collective impact would be on financial markets. Mr Massad said he’s recently discussed the issue with Fed officials as well as Comptroller of the Currency Thomas Curry and Federal Deposit Insurance Corp. Chairman Martin Gruenberg, whose agencies also helped write the leverage rule. “We’ve agreed our staffs would get together and discuss it further,” he said.

Full article on Wall Street Journal (subcription required)

© Wall Street Journal