Four Commodity Futures Trading Commission commissioners challenged an amended element of capital computations by banks proposed by three prudential regulators that the commissioners claimed would discourage bank clearing members from providing clearing services. 

According to CFTC Chairman J. Christopher Giancarlo and three CFTC commissioners – Rostin Behnam, Dan Berkovitz, and Brian Quintenz – the proposed amendment by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation to the method of computing bank’s supplemental leverage ratio would not adequately give credit to the risk-reducing impact of a clearing firm receiving and holding a client’s initial margin against a client’s derivatives position. This proposed amended method – termed “SA-CCR” – would “maintain or increase the clearing members’ SLRs by more than 30 basis points on average, will continue to disincentivize clearing members from providing clearing services, and thereby limit access to clearing in contravention of G20 mandates and Dodd-Frank,” said the commissioners in a comment letter to the prudential regulators. The commissioners noted that offset is warranted as clearing members cannot use client margin for leverage for any proprietary purpose by law. Dawn Stump, the fifth CFTC commissioner, recused herself from joining the comment letter.

In 2017 the US Department of Treasury recommended that the bank leverage ratio calculations should exclude initial margin for centrally cleared derivatives. (Click here for details in the article “US Department of Treasury Recommends Modifications to Volcker and Bank Capital Rules, and Rationalization of Financial Regulation” in the June 18, 2017 edition of Bridging the Week.)

The SLR requires some of the largest US banks to set aside as much as 5 percent of their assets as a guard against losses. Currently, these assets include cash posted as margin by customers for their swaps and other derivatives trading activity through the banks’ futures commission merchant subsidiaries.