Margin

In 2014, the Fed, FDIC, OCC, FCA, and FHFA (collectively, the “Prudential Regulators”) voted to re-propose rules that would impose margin requirements on prudentially regulated swap dealers (SDs), major swap participants (MSPs), security-based swap dealers (SB-SDs), and security-based major swap participants (SB-MSPs) (collectively, “Covered Swap Entities”) entering into uncleared swaps and security-based swaps.  In a separate vote, the CFTC voted to re-propose similar rules applicable to non-prudentially regulated SDs and MSPs.  

If adopted, the proposals would impose initial and variation margin requirements on transactions between covered swap entities and certain counterparties, including transactions with affiliates.

ABA's Position

ABA has consistently supported the objective of increasing transparency and appropriate supervision of swaps and other financial products of systemic importance. However, it is critical that regulatory implementation of these objectives preserve the ability of banks to serve as engines for economic growth and job creation by providing long-term credit to businesses and offsetting the customary risk these transactions create through their own internal risk management functions. For many banking enterprises, the use of affiliate swap transactions is an important risk management tool.  Excessive margin requirements would make it difficult or impossible for many banks to continue using swaps to hedge the interest rate, currency, commodity and credit risks that arise from their loan, securities, and deposit portfolios.

 

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​Questions? Contact Ananda Radhakrishnan for more information.