A group of global trade associations and clearinghouses submitted a letter to the Basel Committee on Banking Supervision last week, arguing that the Basel III leverage ratio framework should not discourage centrally cleared transactions by penalizing banks that process customer margin through segregated accounts. (The group included FIA Global, The World Federation of Exchanges, CCP12, ICE, CME Group, LCH Clearnet Group and Eurex Group.) As a result, claims the group, BCBS should recognize that customer funds segregated by banks in support of cleared derivatives transactions cannot be leveraged by a bank, unlike customer collateral posted in support of non-cleared derivatives which can be leveraged. Without such recognition, banks will require more capital for their clearing business which will “likely result in market exit by some derivatives clearing members that will find the business no longer economically viable in terms of producing a sufficiently high return on equity,” claimed the group. The group recommends clarification of this principle through issuance of a Frequently Asked Questions document or an amendment to the leverage ratio.