By Electronic Mail

June 23, 2025

Ann E. Misback
Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue N.W.
Washington, D.C. 20551

Re: Modifications to the Capital Plan Rule and Stress Capital Buffer Requirement, RIN 7100-AG92

Ladies and Gentlemen,

The Securities Industry and Financial Markets Association (“SIFMA”)¹ and the International Swaps and Derivatives Association, Inc. (“ISDA”² and, together with SIFMA, the “Associations”) appreciate the opportunity to comment on the proposal (“Proposal”)³ by the Federal Reserve Board of Governors (the “Board”) to revise its capital plan rule and stress capital buffer requirement (“SCB”). Consistent with the Associations’ membership and organizational focus, this letter focuses on the Proposal’s impact on capital markets activities of broker-dealers affiliated with large banking organizations including trading, market making, and other related financial services.

I. Executive Summary

Stakeholders of all types and sizes rely on U.S. capital markets for a range of essential financial services, the availability and cost of which have a profound effect on U.S. economic growth and the well-being of American businesses and households. Large banking organizations serve as critical intermediaries, supporting the health and vibrancy of the U.S. capital markets by providing financing, market making and hedging services to a wide range of clients ranging from corporates to asset managers and smaller banking organizations. These large banking organizations are subject to a suite of capital requirements, including not just stress capital but also other risk-based and leverage capital requirements. Reforms that ensure aggregate capital requirements are proportionate to the underlying risks would enhance efficiencies in the capital markets.⁴ These efficiencies ultimately will flow through to a broad range of consumers and savers, all of whom benefit from lower cost of credit, stable prices for goods and services and opportunities to invest cost effectively in liquid and dynamic markets.

The Associations commend the Board for initiating efforts to address longstanding and unwarranted volatility of the SCB. In this Proposal, that volatility is primarily addressed by averaging SCB results over a two-year period (“simple averaging”). However, the Proposal fails to address more fundamental drivers of SCB volatility, including the implausibility of the supervisory stress scenarios and the overlap with the risk-based capital framework. These core issues lead to SCBs that are not only excessively volatile but also not reflective of underlying risks. The combination of excessive volatility and miscalibration relative to underlying risks constrains
large banking organizations’ capacity to intermediate the U.S. capital markets and support economic growth. As such, broader and more material reforms that address these fundamental issues are required to ensure the supervisory stress testing framework remains relevant and effective.

As a matter of first principles, the Board should seek to ensure that the calibration of the prudential capital framework in its totality is proportionate to underlying risks and appropriately designed to facilitate economic growth and the provision of financing to the real economy. Although averaging SCB results would mitigate to some extent the adverse effects of the SCB on the ability of large banking organizations to engage in capital markets-related activity, this step alone is not sufficient to fix deeper flaws in the supervisory stress testing framework that, if unaddressed, will continue to impede large banking organizations’ ability to fully support economic growth. To help ensure appropriate calibration of the prudential capital framework and improve transparency into the supervisory stress testing framework, the Board should also publish supervisory stress scenarios for public comment before finalizing them with sufficient detail to enable the public to provide comments that will enable the Board to make scenarios appropriately calibrated to underlying risk.⁵

To that end, the Associations highlight the following key recommendations, which are described in more detail below:

• A banking organization should be permitted, for the 2025 stress testing cycle, to have its SCB requirement determined under the current SCB rule through September 30, 2026, regardless of whether the proposal is finalized with an effective date on or prior to October 1, 2026. Additionally, the final rule—if it becomes effective January 1, 2026—should clarify that the SCB requirement effective through September 30, 2026,
  would apply through December 31, 2026.
• An asymmetric averaging approach should be adopted to determine the SCB requirement. Asymmetric averaging of two-year supervisory stress test results would enable SCB requirements to adapt quickly to reduced risks and allow large banking organizations time to manage increased risks, resulting in efficient capital allocation. By contrast, simple averaging would not allow firms to deploy capital to the same extent in
  response to reduced risks, because the prior year’s results, reflective of a higher-risk environment, would flow through into the current year’s SCB.
• The dividend add-on component should be removed from supervisory stress tests. The dividend add-on component is conceptually inconsistent with the maximum payout ratio requirement under the capital rules and should be removed from supervisory stress tests.
• The supervisory stress testing framework includes assumptions that are not consistent with post-crisis reforms or market practice. In response to the 2008 global financial crisis, numerous financial regulatory reforms have been put in place to curtail risk taking by large banking organizations in their capital markets-related activities in the United States, such as the Volcker rule, mandatory clearing of certain OTC derivatives, and the swap margin rule. In addition, banking organizations have significantly strengthened their own risk management practices. The current supervisory stress testing framework, which dates to early 2009, does not account for the risk-mitigating benefits of these post-crisis financial reforms and strengthened risk management practices, while also relying on assumptions that often contradict the requirements of
  these reforms. As such, the current supervisory stress testing framework is conceptually incoherent with the broader post-crisis reforms and not fit-for-purpose. The Associations commend the Board for committing to adjusting the supervisory stress testing framework. In light of that commitment, the Associations urge the Board to undertake reforms that ensure consistency with the post-crisis financial reforms and the current risk management standards of large banking organizations. For instance, the global market shock (“GMS”) does not account for benefits of diversification, resemble recent market stresses, or recognize significant improvements to the post-crisis capital framework or large banking organizations’ own risk management practices. The misalignment of the GMS and other aspects of the supervisory stress testing framework limits the ability of large banking organizations to intermediate in U.S. capital markets.
• The supervisory stress testing framework is conceptually inconsistent with the RWA framework. The current U.S. capital rules stipulate that large banking organizations must calculate certain RWAs to reflect stressed market conditions. As a result, stress losses arising from capital markets-related activities are captured by both the market risk and counterparty credit risk framework as well as the supervisory stress testing
  framework’s GMS and largest counterparty default (“LCD”) components. The U.S. Basel 3 Endgame proposal also would apply the SCB to the RWA framework, exacerbating the overlaps between the RWA framework and the supervisory stress testing framework. The Board should reform both the supervisory stress testing framework and the RWA framework to ensure their conceptual consistency.

1. SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s nearly 1 million employees, we advocate for legislation, regulation, and business policy, affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). [↩]
2. Since 1985, ISDA has worked to make the global derivatives markets safer and more efficient. Today, ISDA has over 1,000 member institutions from 76 countries. These members comprise a broad range of derivatives market participants, including corporations, investment managers, government and supranational entities, insurance companies, energy and commodities firms, and international and regional banks. In addition to market participants, members also include key components of the derivatives market infrastructure, such as exchanges, intermediaries, clearing houses and repositories, as well as law firms, accounting firms and other service providers. Information about ISDA and its activities is available on ISDA’s website: www.isda.org. [↩]
3. Modifications to the Capital Plan Rule and Stress Capital Buffer Requirement, 90 Fed. Reg. 16,843 (Apr. 22, 2025) [↩]
4. In her June 6, 2025 speech, the Board’s Vice Chair on Supervision Bowman rightly noted that “[o]ver-calibrated capital requirements effectively create market distortions, disfavoring some activities over others in a way that is divorced from
   prudential safety and soundness goals and economic conditions.” Michelle W. Bowman, Vice Chair for Supervision, Board of Governors of the Federal Reserve System, Taking a Fresh Look at Supervision and Regulation, June 6, 2025, https://www.federalreserve.gov/newsevents/speech/bowman20250606a.htm [↩]
5. The Board has already acknowledged that public comment on stress tests would “improve the transparency of its bank stress tests and to reduce the volatility of resulting capital buffer requirements.” Board of Governors of the Federal Reserve, Press Release, Dec. 23, 2024, available at https://www.federalreserve.gov/newsevents/pressreleases/bcreg20241223a.htm. [↩]