US Swap Dealers Express Concerns Over Basel III Endgame Proposals Impacting Clearing Provision and Competitiveness

US swap dealers are expressing concerns over the Basel III endgame proposals, particularly the impact on clearing provision, according to an article on Risk.net. The proposed rulemaking, issued by the Federal Reserve, Federal Deposit Insurance Corporation, and Comptroller of the Currency, includes operational risk capital charges that swap dealers argue would act as a direct tax on certain business activities, including clearing.

The proposed changes replace the advanced measurement approach with the standardized measurement approach for operational risk, calculating it on gross revenues rather than net revenues. This shift could lead to higher capital charges for clearing businesses, affecting pricing and capacity.

Additionally, the endgame proposals raise worries about an uneven playing field for US banks compared to their European counterparts. The Internal Loss Multiplier (ILM), which uses average annual operational risk losses over the last decade to calculate capital charges, is a concern. US banks fear a competitive disadvantage as the European Union allows supervisors discretion in setting the ILM, potentially putting US banks at a disadvantage.

Further concerns involve capital rules for non-cleared transactions, including the standardization of rules for credit risk and the treatment of credit valuation adjustments (CVA). The proposed changes in the Basel III endgame, especially those related to the treatment of pension schemes and asset managers, are causing unease among US swap dealers, who argue that these changes may put them at a disadvantage compared to their European counterparts.