December 9, 2019

Ann E. Misback
Secretary
Board of Governors of the Federal Reserve
System
20th Street and Constitution Avenue, NW
Washington, DC 20551

Robert E. Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429

Chief Counsel’s Office
Attention: Comment Processing
Office of the Comptroller of the Currency
400 7th Street, SW, suite 3E-218
Washington, DC 20219

Barry F. Mardock
Acting Director
Office of Regulatory Policy
Farm Credit Administration
1501 Farm Credit Drive
McLean, VA 22102-5090

Alfred M. Pollard
General Counsel
Attention: Comments/ RIN 2590-AB03
Federal Housing Finance Agency
Constitution Center (OGC Eighth Floor)
400 7th Street, SW
Washington, DC 20219

Re: Margin and Capital Requirements for Covered Swap Entities

Ladies and Gentlemen:

The American Bankers Association, the ABA Securities Association, the Bank Policy Institute, the Center for Capital Markets Competitiveness of the U.S. Chamber of Commerce, the Financial Services Forum, the Institute of International Bankers, and the Securities Industry and Financial Markets Association (together, the “Associations”)1 appreciate the opportunity to provide comments to the Board of Governors of the Federal Reserve (the “Board”), the Farm Credit Administration (the “FCA”), the Federal Deposit Insurance Corporation (the “FDIC”), the Federal Housing Finance Agency (the “FHFA”), and the Office of the Comptroller of the Currency (the “OCC” and, together with the Board, FCA, FDIC, and FHFA, the “Prudential Regulators”) on their proposals (the “Proposal”)2 regarding amendments to margin requirements for uncleared swaps and security-based swaps (together with swaps, “swaps”) entered into by swap dealers, security-based swap dealers, major swap participants, and major security-based swap participants regulated by the Prudential Regulators (“Swap Entities”) under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).

We support the efforts by the Prudential Regulators to provide relief to legacy swaps that are amended to replace discontinued or unreliable interest rate provisions, reflect logistical or technical changes to the parties’ circumstances, or manage the risk of a swap portfolio. Such changes are necessary to minimize future market disruptions and incentivize systemic risk management practices by Swap Entities.

We also support the efforts by the Prudential Regulators to foster international harmonization, as well as harmonization with other U.S. regulators, of margin requirements for swaps. Specifically, we support the proposal to exempt swaps between affiliates (“inter-affiliate swaps”) from initial margin (“IM”) requirements, which would more closely align the Prudential Regulators’ requirements with those of the Commodity Futures Trading Commission (“CFTC”)3 and many other G20 regulators. Additionally, we support the addition of a sixth compliance phase for IM requirements for counterparties with average daily aggregate notional amounts (“AANA”) from $8 billion to $50 billion. This addition would align with the international margin framework, as recently amended by the Basel Committee on Banking Supervision (“BCBS”) and the International Organization of Securities Commissions (“IOSCO”). Such harmonization efforts will decrease opportunities for regulatory arbitrage, while also reducing the competitive disadvantages currently faced by Swap Entities vis-à-vis firms not subject to the Prudential Regulators’ margin regulations. Adding a sixth compliance phase also will provide the Prudential Regulators with more time to consider possible further actions to address concerns that the last compliance phase will encompass many counterparties that do not pose systemic risk because, for example, their swap portfolios do not give rise to exposure exceeding the $50 million IM threshold.

Amendments to Legacy Swaps to Replace Certain Interest Rate Provisions. Under the Proposal, amendments replacing certain interest rate provisions and follow-on amendments implementing and operationalizing such replacements would not cause legacy swaps to lose their legacy status. The Prudential Regulators’ proposal allows for the replacement of inter-bank offer rates (“IBORs”)4 or any other interest rates that a Swap Entity reasonably expects to be discontinued or determines are no longer reliable due to a significant impairment.

 

1 Descriptions of the Associations can be found in Appendix A to this letter.
2 This comment letter is submitted with respect to the following proposals: Margin and Capital Requirements
for Covered Swap Entities, Docket No. OCC-2019-0023/RIN 1557-AE69, Docket No. R-1682/RIN 7100-AF62,
RIN 3064-AF08, RIN 3052-AD38, RIN 2590-AB03, 84 Fed. Reg. 59970 (Nov. 7, 2019).
3 See 17 C.F.R. § 23.159.