Vital Law
PRUDENTIAL REGULATION—Republican senators stress need for tailoring of Basel III, GSIB Surcharge proposals
By Colleen M. Svelnis, J.D.
The senators asked the regulatory agencies to reevaluate its proposals with an approach that takes into consideration the farmers, ranchers, and energy producers that utilize derivatives markets to hedge risk.
A group of Republican senators have sent a letter to the heads of the federal banking agency regarding the agencies’ approach to the Basel III Endgame Proposal and the GSIB Surcharge Proposal. The lawmakers wrote that they are “encouraged” by the agencies’ approach to “emphasize safety and soundness without burdensome restrictions that hamper economic growth.” The letter—which was sent to Federal Reserve Board Vice Chair for Supervision Michele Bowman, Comptroller of the Currency Jonathan Gould, and Acting Chairman of the Federal Deposit Insurance Corporation Travis Hill—discusses the need for a tailored approach that takes into consideration the farmers, ranchers, and energy producers that utilize derivatives markets to hedge risk.
The letter was signed by Sens. Jerry Moran (R-Kan.), Bill Haggerty (R-Tenn.), Tommy Tuberville (R-Ala.), John Boozman (R-Ark.), Cindy Hyde-Smith (R-Miss.), and Katie Boyd Britt (R-Ala.).
The Senators state that in the original proposal curtailing critical risk management tools for end-users in the original proposals was a “misguided approach, as these markets play a crucial role in stabilizing prices, giving businesses greater certainty, and insulating consumers from price swings.” They stress that parts of the original proposals, such as the credit valuation adjustment charge (CVA) for client clearing and the public listing requirement, “would make it more expensive for entities like farmer cooperatives to use derivatives markets.”
The Senators close the letter by stressing that the bank capital proposals as originally drafted “would have had broad impacts on the ability of agriculture and energy producers to manage volatile commodity markets.” Moving forward, the legislators are asking the regulators to reevaluate the proposals and consider “the adverse effects of disincentivizing banks from offering hedging products to industries sensitive to price volatility in commodity markets such as grain, livestock, oil, fertilizer, and minerals.” The lawmakers contend that the rules would also increase regulatory capital charges for banks that provide end-users with access to hedging markets.
“We respectfully ask that you craft these rules in a manner that provides sufficient capacity, including in times of heightened volatility, for banks to offer products that allow stakeholders to properly hedge risk, thus providing businesses certainty and allowing downstream prices to remain stable for consumers.”