Fed plan too weak to get banks to clear more derivatives, asset managers say

28 August 2018 5:41pm
Asset management groups, echoing the derivatives industry, contend that a US Federal Reserve proposal to reduce banks’ capital requirements for loans won’t do enough to encourage banks to clear more derivatives.

Bank exits from the low-profit clearing business are likely to continue, resulting in higher fees for institutional investors that work through banks to trade derivatives, said the Securities Industry and Financial Markets Association’s asset management group. Its members include BlackRock, Fidelity Investments and Vanguard.

With four banks dropping much of their clearing business in recent years, asset managers “experienced higher fees in particular where they posted initial margin in the form of cash,” said the recent letter from both the Sifma group and the Managed Funds Association, which represents hedge funds.

The Fed’s supplementary leverage ratio proposal last spring, the letter added, “would continue to disincentivize banking organizations from providing clearing services to end users, and continue to result in higher fees for derivatives clearing.”