Trade Bodies Urge Basel Rewrite Over 30%-89% Trading Capital Jump as $29 Trillion Treasury Liquidity Risks Rise
Updated
Updated · Financial Times · Jun 18
Trade Bodies Urge Basel Rewrite Over 30%-89% Trading Capital Jump as $29 Trillion Treasury Liquidity Risks Rise
3 articles · Updated · Financial Times · Jun 18
Summary
Three major financial trade bodies told the Fed, FDIC and OCC that current Basel Endgame market-risk proposals could raise banks’ trading capital requirements by 30% to 89%, threatening Treasury-market liquidity.
The groups said the problem will intensify as mandatory central clearing for US Treasury and repo trades takes effect from next year, because lower margin demands could still trigger higher counterparty credit-risk capital charges.
Their letter seeks changes to the fundamental review of the trading book, including the treatment of repo-style transactions and default-risk charges that they say overstate exposure to extreme market shocks.
The push comes after regulators already softened Basel plans so much that, in March, the Fed said the package would lower capital requirements for the biggest US banks by 4.8%.
Officials are said to doubt the liquidity warnings, arguing the rules would mainly hit less-liquid assets, while the Bank of England and EU are watching closely after delaying their own market-risk Basel reforms.