SIFMA and Other Associations Submit Letter to Multiple Regulators Regarding the Posting of Margin for Swaps between Affiliates
SIFMA, The Clearing House Association L.L.C., the American Bankers Association ("ABA") and the ABA Securities Association (together, the "Associations") provided comments to multiple U.S. regulators regarding the proposed margin and capital requirements for covered swap entities.
The letter, which was sent to the Board of Governors of the Federal Reserve System, the Federal Housing Finance Agency, the Office of the Comptroller of the Currency, the Farm Credit Administration, the Federal Deposit Insurance Corporation, the CFTC and the SEC (collectively, the "Regulators"), recommends modifications to the initial margin requirements in the proposed margin and capital requirements rule.
The Associations stated that they "strongly believe" the imposition of initial margin requirements on inter-affiliate swap transactions "not only is unnecessary as a statutory matter, but is also likely to result in negative unintended consequences that are detrimental to both institutional safety and soundness and systemic financial stability." The Associations also noted that "there are numerous other and better-suited tools currently available" to monitor those transactions and address related concerns.
The Associations expressed that Sections 23A and 23B of the Federal Reserve Act "represent Congress's considered view of the regime to which swaps between a bank and its affiliates should be subject." The Associations explained they are concerned that the initial margin requirements in the proposed rule could introduce inconsistency with the "letter and spirit" of Sections 23A and 23B. Additionally, the Associations stated that they believe that the proposed rule would impose costs that "far outweigh" the benefits.
The Associations suggested modifications to the proposed rule, which they stated would:
- ensure consistency with Dodd-Frank and Sections 23A and 23B;
- support safety and soundness;
- prevent evasion of margin requirements – especially in the cross-border context;
- avoid undue incentives for additional inter-affiliate swaps (relative to third-party swaps); and
- preserve liquidity in capital markets.
See: Associations' Comment Letter. Related news: Banking Agencies Re-Propose Margin and Capital Requirements for Covered Swap Entities (with Robins Comment and Cadwalader Summary) (September 3, 2014).