FSB review of bank capital rules falls short on derivatives-clearing disincentives, banks say

17 September 2018 9:13pm
Banking groups said a rosy Financial Stability Board evaluation of post-crisis capital rules doesn’t adequately take into account their adverse impact on incentives to centrally clear derivatives.

Banks’ client-clearing capacity has been “significantly” hindered by Basel III’s treatment of their clearing activity within risk-based capital requirements, the leverage ratio and the surcharge for systemically important banks, said the Global Financial Markets Association and other groups.

“The current capital regime overstates the risks of client clearing, which are modest,” said the letter, whose signatories also include the Futures Industry Association and the Institute of International Finance.

By increasing the cost of providing clearing services for customers, the recent letter said, rules limit “the amount and types of derivative positions that banks are willing to clear for clients and the types of clients for which banks will clear.”