U.S. Senator David Perdue (R-GA), a member of the Senate Banking Committee, is taking action to relieve financial regulatory burdens and extra costs that are passed down to small business owners, farmers, and consumers.
After the 2008-2009 financial crisis, federal bank regulators were driven to increase the amount of capital held by banks for certain “risky” activities. This included the supplemental leverage ratio (SLR), which requires banks to hold a certain amount of capital. The SLR did not account for the initial margin that customers pay. As a result, duplicative capital buffers were built as banks had to hold additional capital aside. The cost of this trapped capital was ultimately passed onto the end users – such as farmers and business owners.
“This regulatory relief is long overdue,” said Senator Perdue. “Following the 2008-2009 financial crisis, capital requirements were raised to help banks mitigate risk. However, this particular regulation went too far and created additional costs for American business owners, farmers, and consumers. Fixing this unintended consequence will provide much-needed relief and free up capital for our main street economy.”
- Commodity Futures Trading Commission (CFTC) Chairman Christopher Giancarlo estimated that addressing the leverage ratio treatment of initial margin would reduce bank capital by only 1%. However, this would reduce clearing capital costs by 70% and promote additional market activity.
- Former CFTC Chairman Timothy Massad expressed concern with industry consolidation increasing systemic risk, saying, “If some clearing members choose to limit customers, or get out of the clearing business altogether, that may make it harder to deal with the next time a clearing member defaults.”
- On March 21, 2018, the House Financial Services Committee voted to advance this bill, which was introduced by Congressmen Blaine Luetkemeyer (R-MO-3) and David Scott (D-GA-13).
Click here for the full bill text.