FIA concerned over leverage ratio revisions
11 April 2016 Washington DC
Image: Shutterstock
The Futures Industry Association (FIA) has expressed concern over the Basel Committee’s proposed revisions to the Basel III leverage ratio framework, but has committed to continue working with the committee on the changes.
The FIA said it is disappointed that the new proposed framework does not feature an offset for initial margin, however the association also noted that the committee has called for data in order to further evaluate the issue.
According to the FIA, capital requirements are already having an effect of the industry, which is seeing a decline in numbers of clearing members, increased concentration risk and reduced access for hedging.
The association has agreed to continue working with regulators and industry members to measure and correct these issues.
President and CEO of FIA Walt Lukken said: “FIA welcomes the opportunity to share these concerns with the Basel Committee. We will work with industry members to facilitate the committee’s efforts to gather and analyse data on the impact of capital requirements.”
Changes proposed include: revisions to the treatment of derivatives exposures, provisions and sales of financial assets; additional requirements for global systematically important banks; changes in credit conversion for off-balance sheet items; and changes in treatment for cash pooling transactions, traditional securitisations and securities financing transactions.
“It’s critical that we get the calculation for the leverage ratio right,” said Lukken.
“The leverage ratio should not stand in the way of the G-20’s goal of reducing systemic risk through greater adoption of central clearing. Our concern is that this will make it more difficult for market participants to hedge risk using cleared derivatives. Worse, it may harm the safety and resilience of our clearing system.”
The Basel Committee is seeking comment on the proposed revision, with comments required by 6 July.
The FIA said it is disappointed that the new proposed framework does not feature an offset for initial margin, however the association also noted that the committee has called for data in order to further evaluate the issue.
According to the FIA, capital requirements are already having an effect of the industry, which is seeing a decline in numbers of clearing members, increased concentration risk and reduced access for hedging.
The association has agreed to continue working with regulators and industry members to measure and correct these issues.
President and CEO of FIA Walt Lukken said: “FIA welcomes the opportunity to share these concerns with the Basel Committee. We will work with industry members to facilitate the committee’s efforts to gather and analyse data on the impact of capital requirements.”
Changes proposed include: revisions to the treatment of derivatives exposures, provisions and sales of financial assets; additional requirements for global systematically important banks; changes in credit conversion for off-balance sheet items; and changes in treatment for cash pooling transactions, traditional securitisations and securities financing transactions.
“It’s critical that we get the calculation for the leverage ratio right,” said Lukken.
“The leverage ratio should not stand in the way of the G-20’s goal of reducing systemic risk through greater adoption of central clearing. Our concern is that this will make it more difficult for market participants to hedge risk using cleared derivatives. Worse, it may harm the safety and resilience of our clearing system.”
The Basel Committee is seeking comment on the proposed revision, with comments required by 6 July.
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