Randy Benjenk is quoted in a Risk article discussing how a potential cut in U.S. supplementary leverage ratio being considered by the Federal Reserve might not be sufficient to restore the economics of client clearing and avoid more firms exiting the business. According to Benjenk, HR 4569 has a good chance of becoming law if it gets to the Senate, as it is “the kind of small tweak around the edges” that has little impact on banks’ overall capital ratios and therefore could garner bipartisan support in both House and Senate. Additionally, clearing affects end-users as well as big banks. Legislators in both parties tend to be more sympathetic to end-user appeals, and this could give it extra heft in Congress, says Benjenk. “It’s not just a bank issue, it’s an issue for end-users in agriculture, corporate end-users, pension funds – all of whom need access to derivatives at a reasonable price to hedge their risk," Benjenk adds. “If the House is any indication, there should be moderate Democrats, particularly those in rural states, who are hearing from agricultural end-users, who would probably be open-minded on the issue and possibly even supportive.”
Commenting on how Europe's proposal to amend its capital rules could influence U.S. legislators, Benjenk says, “Congress may well be looking at the situation and asking itself: ‘Aren’t our regulations artificially disadvantaging U.S. markets and market participants?’ That is one good reason why this bill has a good chance of advancing.” “If the EC finalised its rule as it is currently proposed, you could see a migration of clearing activity outside the US to Europe."
Benjenk also points out that while there may be regulatory reluctance to provide an IM carve-out, the idea is not without precedent. In the Basel leverage ratio, securities financing transactions are included in the exposure measure, but net of margin provided. “So client [swaps] margin wouldn’t be the only transaction type where this treatment would be provided,” he explains.
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