Another letter on customer margin treatment under Basel capital rules has been made public, this one from a bipartisan Congressional group of Members who serve on the House Financial Services Committee. The letter was signed by Reps. John C. Carney, Jr. (D-DE), Randy Neugebauer (R-TX), Frank Lucas (R-OK), and Bill Foster (D-IL).
“Under the Commodity Exchange Act, this highly liquid margin must be legally segregated from the bank’s assets so that it always available to pay any good debt owed by the customer to the clearinghouse before the bank must make good on its guarantee. In this context, the Basel III leverage ratio appropriately recognizes the exposure created by the guarantee as an off-balance sheet exposure, but it then fails to recognized the segregated liquid margin posted by the customer as reducing that exposure.
“We believe the Financial Stability Oversight Council (FSOC) should thoroughly examine the treatment of the exposure reducing customer margin and facilitate a coordinated approach to address this apparent inconsistency between existing market regulations, new leverage ratio application, and the goal of increasing the transparency and efficiency of derivatives trading.”
Letter to Janet Yellen, Chair, Fedweral Reserve from US House Committee on Agriculture
