Modern office building close up in sunlight

A couple of financial industry trade groups are pushing back on the final implementation of the Basel III reforms in the U.S., which they say will result in an excessive tightening of capital requirements on the big U.S. banks.

In a joint submission to the U.S. regulators, the International Swaps and Derivatives Association, Inc. (ISDA) and the U.S. Securities Industry and Financial Markets Association (SIFMA) called for a series of revisions to the regulators’ proposal for finalizing the post-financial crisis reforms to the capital rules, known as “Basel III Endgame.”

The trade groups said the proposed revisions to the banks’ capital rules would “impose excessive capital requirements that are not aligned with underlying risk, and negatively affect companies, consumers and savers who benefit directly or indirectly from bank involvement in U.S. capital markets.”

In particular, they pointed to the proposed requirements for banks’ trading books, the credit valuation adjustment framework, the rules for securities financing transactions, and aspects of the counterparty credit risk rules.

“Based on an industry quantitative impact study with input from eight U.S. global systemically important banks, the proposed [trading book rules] and CVA framework would result in a 129% increase in market risk and CVA risk-weighted assets under the new expanded risk-based approach versus the current U.S. standardized approach,” they said in their submission to regulators.

In a separate response to a consultation by the U.S. Federal Reserve on proposed changes to the capital surcharge for global systemically-important banks, the ISDA and SIFMA also highlighted their concerns that this “would lead to inappropriately high capital requirements for banks offering client clearing services, potentially discouraging them from participating in this business and contravening a long-standing policy objective to promote central clearing.”

On this requirement specifically, they said proposed changes to the surcharge would result in a US$5.2 billion increase in capital requirements across the large banks, which “would be compounded by the significant impact of the higher [risk weighted assets] requirements under the U.S. Basel III Endgame proposal.”

In response, the groups recommend a series of changes to the regulators’ proposals that, they argue, would avoid the adverse effects of the existing proposals on the banks and the U.S. capital markets.