OCC Comment on Regulatory Capital Rule: Amendments Applicable to Large Banking Organizations with Significant Trading Activity – Notice of Proposed Rulemaking

Megan M. Cohen
January 16, 2024
By Megan M. Cohen ,General Counsel and Corporate Secretary

OCC appreciates the opportunity to comment on the rule proposal set forth in the above-referenced notice of proposed rulemaking (the “Proposal”) published jointly by the Board of Governors of the Federal Reserve System (the “Board”), the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency (together, the “Agencies”). The Proposal sets forth revisions to large bank capital requirements that would implement policy that the Agencies believe would be consistent with the latest recommendations of the Basel Committee on Banking Supervision (“BCBS”), which are commonly referred to as the “Basel III Endgame.” According to the Proposal, its objective is to improve risk-based capital requirements for large banks to better reflect underlying risks and to increase the consistency of how banks measure these risks.

OCC generally supports these objectives and the efforts by the Agencies to set appropriate capital requirements for large banking organizations to increase the strength and resilience of the banking system. However, while it is not the intent of the Proposal, OCC believes that certain aspects of the Proposal would discourage use of central clearing for derivatives that OCC clears and settles. As a result of the resilience demonstrated by central counterparties (“CCPs”), like OCC, before and during the 2008 financial crisis, the G-20 committed in 2009 to promote central clearing to reduce systemic risks and bolster market stability. The G20 and lawmakers that implemented the post-crisis reforms recognized central clearing’s numerous benefits, such as improved risk management, reduced counterparty risk, and centralized default management. In fact, one of the objectives of Basel III was to promote central clearing of standardized derivatives contracts to mitigate systemic risk and make derivatives markets safer. Board Chair Jerome H. Powell has also stated that global regulators “have a responsibility to ensure that bank capital standards and other policies do not unnecessarily discourage central clearing.” Accordingly, OCC believes that certain aspects of the Proposal that would disincentivize clearing should be modified, as described below.

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