SIFMA AMG and Financial Markets Association (“SIFMA AMG” or “AMG”) and Managed Funds Association (“MFA”) appreciate the opportunity to comment on the proposed rule issued by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency to establish a Net Stable Funding Ratio requirement for large banking organizations.
For the reasons described in our comment letter, the SIFMA AMG and MFA recommend that the Agencies make the following changes to improve the Proposal:

Tailor the Criteria for Recognition of Variation Margin to the NSFR Context. The final NSFR should address the Proposal’s unnecessary and unjustified asymmetrical treatment of variation margin received and variation margin provided by (1) permitting variation margin in the form of securities that are HQLA to reduce a banking organization’s derivative asset amounts, (2) permitting variation margin denominated in any currency of a jurisdiction in which the banking organization operates to reduce derivative asset amounts, and (3) permitting variation margin to reduce derivative asset amounts even if it is not the full amount necessary to extinguish the banking organization’s current exposure.

Provide a Downward Adjustment to the RSF Factors of Derivatives With a Short Remaining Maturity. Consistent with other parts of the NSFR, the final NSFR should recognize that short-dated derivative assets require less stable funding by including downward adjustments for derivatives with a remaining maturity of one year or less and six months or less.

Release More Information Relating to the Add-On for Potential Portfolio Valuation Changes and Re-propose the Add-On. The Agencies should release their data supporting the proposed add-on, explain how the add-on bears a reasonable relationship to the risk it seeks to capture, and only after taking those steps, re-propose the add-on for more meaningful public comment. At the very least, the final U.S. NSFR should not gold-plate the Basel NSFR standard by grossing up settlement payments that extinguish a banking organization’s obligation to its counterparty for purpose of calculating the add-on.

Treat Repo and Reverse Repo Symmetrically. The Agencies should assign the same percentage factors to the ASF of repos and the RSF for reverse repos for financial sector entity counterparties so as not to disincentivize matched book funding and disrupt the functioning of capital markets transactions that depend on banking organizations to provide repo funding.

Recognize Assets and Liabilities Associated With Client Shorts as Interdependent Assets and Liabilities Requiring 0 Percent RSF or ASF. The Agencies should use the discretion permitted to them under Paragraph 45 of the Basel standard to assign a 0 percent RSF to assets arising out of client short transactions when the banking organization’s role in the securities borrowing transaction is subject to Regulation T.

Assign a 0 Percent RSF Factor to Segregated Client Assets. The final NSFR standard should treat client assets subject to strict SEC or CFTC segregation requirements as the client’s property, requiring no stable funding by the banking organization.