Large Banking Organizations and Banking Organizations with Significant Trading Activity (SIFMA and FIA)


SIFMA and FIA submitted comments to the Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency (OCC), and Federal Deposit Insurance Corporation (FDIC) on the Basel III endgame proposal issued by the Agencies.

See related: SIFMA, FIA Comment on Operational Risk Elements of the Proposed U.S. Implementation of the Basel III Proposal


Submitted To

The Board of Governors of the Federal Reserve System, OCC, and FDIC

Submitted By







By Electronic Mail
January 16, 2024

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

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

James P. Sheesley, Assistant Executive Secretary
Attention: Comments/Legal OES RIN 3064–AF29
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429

Re: Notice of Proposed Rulemaking, Regulatory Capital Rule: Amendments Applicable to Large Banking Organizations and to Banking Organizations with Significant Trading Activity; Federal Reserve Docket No. R–1813, RIN 7100–AG64; OCC Docket ID OCC-2023-0008; FDIC RIN 3064-AF29

Ladies and Gentlemen,

The Securities Industry and Financial Markets Association (“SIFMA”)1 and the Futures Industry Association (“FIA,”2 together with SIFMA, the “Associations”) appreciate the opportunity to comment on the Basel III endgame proposal issued by the Board of Governors of the Federal Reserve System (“Federal Reserve”), Office of the comptroller of the Currency (“OCC”) and Federal Deposit Insurance Corporation (“FDIC,” and collectively with the Federal Reserve and the OCC, the “Agencies”).3

This letter is focused on the adverse effects on the U.S. capital markets arising from the intended treatment of fee-and commission-based services under the proposed operational risk capital framework. These adverse effects would arise because the proposal would require banking organizations to hold capital against fee and commission-based activities, effectively without limit. To avoid this excessive calibration, the Agencies should modify the proposed treatment of fee and commission-based services to mitigate the likely adverse effects on capital markets.

In addition, as proposed, the services component of operational risk would impact foreign banking organizations’ (“FBOs”) access to the U.S. capital markets through its treatment of inter-affiliate reimbursements for intermediate holding companies (“IHCs”) of FBOs. The Agencies should therefore revise the proposal to exempt any reimbursement of an expense from a FBO parent entity to the same extent as a similar expense under the fee and commission-based services component calculation.

Although not discussed in detail in this letter, we also urge the Agencies to reduce the significant over-calibration of the broader operational risk framework, of which the services component is just one driver. Specifically, the Agencies should consider the recommendations set out in the comments submitted by the Bank Policy Institute (“BPI”) and the American Bankers Association (“ABA”) in response to the proposal.4

We urge the Agencies to carefully review our comments on the services component of operational risk as part of a broader evaluation of the U.S. bank capital framework. We also encourage the Agencies to proceed cautiously, after making an in- depth analysis available to the public, before making changes to the framework as significant as those contained in the proposal. We believe that, given the serious analytical gaps in the proposal, including as highlighted in this letter, the Agencies must make available their economic analysis justifying the proposed requirements and re-propose the rule in full with a new 120-day comment period. The re-proposal should explicitly define the specific capital problems that need to be addressed and how a proposed solution would address them. The re-proposal should also contain a robust economic analysis that convincingly demonstrates the net social benefit of the proposed changes in a data-based and transparent fashion.

I. Executive Summary

The proposal would require banking organizations to use a standardized approach to calculate operational risk capital requirements under the expanded risk-based approach as a measure of three components.5 The services component of the operational risk calculation would aim to capture fee and commission-based activities as well as “other operating” income and expenses associated with certain other banking activities. In particular, the proposal would impose capital charges based on the gross amount of income and expenses (whichever is larger) from, among other activities, retail brokerage, advisory services, custody, client clearing and similar fee-based businesses that rely on and are important to the functioning of the U.S. capital markets. In doing so, the proposal would result in an unnecessarily high calibration of required capital, which would be compounded by similar operational risks being capitalized under both the Stress Capital Buffer (“SCB”) and the proposed standardized calculation for operational risk risk-weighted assets (“RWA”) within the Enhanced Risk-Based Approach (“ERBA”).

To address the over-calibration of operational risk capital requirements for activities arising from the ILD component, the proposal would both net ILD-related income and expenses and cap the overall measurement of these activities relative to a bank’s total assets.6 In contrast, the proposal does not include any cap on or netting of the inputs to the services component, which the Basel Committee recognized as problematic in its 2014 and 2016 consultations. In its 2014 consultation, the Basel Committee stated that banking organizations specializing in providing fee-based financial services faced disproportionately high capital requirements due to the structure of the proposed framework.7

The committee went a step further in its 2016 consultation by explicitly recognizing that the manner in which the services component was calculated would subject “banks with a high fee component . . . [to] capital requirements that are too conservative relative to the operational risk faced by these banks.”8 One recent analysis expresses a similar concern as the Basel Committee, noting that “[l]arge businesses (as measured by the business indicator) would face significant Operational Risk RWA charges regardless of risk profile.”9 In its 2016 consultation, the Basel Committee proposed a solution to this problem for high fee-earning banking organizations,10 but ultimately did not adopt it.. As a result, the services component in the proposal remains overly conservative relative to the operational risks faced by banking organizations.

Given the potential significant impact that this proposal would have on retail customers and other market participants, it is concerning to us that the Agencies have not conducted a thorough economic analysis to evaluate how the proposal’s increased capital requirements on the financial services provided by banks would impact access to financial services or affect the U.S. economy. The Agencies have acknowledged that the proposal would increase costs on banking organizations but claim that “the economic cost of this reduction would be more than offset by the expected economic benefits associated with the increased resiliency of the financial system.”11 The Agencies, however, failed to substantiate this point with detailed economic analysis. The Agencies have also estimated that the proposal would increase RWAs for operational risk by $1.950 trillion but have only accounted for $952 billion of that total as operational risk resulting from lending and trading activities.12 Thus, a significant portion of the $1 trillion shortfall is attributable to the services component of operational risk.


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.

2 FIA is the leading global trade organization for the futures, options and centrally cleared derivatives markets, with offices in Brussels, London, Singapore and Washington, D.C. FIA’s membership includes clearing firms, exchanges, clearinghouses, trading firms and commodities specialists from about 50 countries, as well as technology vendors, lawyers and other professionals serving the industry. FIA’s mission is to support open, transparent and competitive markets; protect and enhance the integrity of the financial system; and promote high standards of professional conduct.

3 See Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System and Federal Deposit Insurance Corporation, Regulatory Capital Rule: Large Banking Organizations and to Banking Organizations with Significant Trading Activity, 88 Fed. Reg. 64028 (Sept. 18, 2023).

4 BPI and ABA joint comment letter at 7-8 and 86-101.

5 The proposal would measure three components that are intended to capture a banking organization’s business volume: the interest, lease and dividend (“ILD”) component; the financial component; and, as most relevant to this letter, the services component.

6 The financial component would also net relevant income and expenses to avoid inappropriately high capital requirements.

7 Basel Committee on Banking Supervision, Consultative Document: Operational Risk – Revisions to the Simpler Approaches (Oct. 2014) at 3-4, https://www.bis.org/publ/bcbs291.pdf. In the 2014 Consultative Document, the Basel Committee stated that: “A small number of banks that are highly specialised in fee businesses have been identified as facing a disproportionately high capital impact
under the [business indicator]. The problem stems from the structure of the [business indicator], which was designed to capture the operational risk profile of a universal bank and does not lend itself to accurate application in the case of banks engaged predominantly in fee-based activities.”

8 Basel Committee on Banking Supervision, Consultative Document: Standardised Measurement Approach for Operational Risk (March 2016) at 4, https://www.bis.org/bcbs/publ/d355.pdf (“2016 Consultative Document”). In the 2016 Consultative Document, the Basel Committee also proposed a different approach to the calculation of the services component, which it did not end up adopting in the Basel framework.

9 See Morgan Stanley Research and Oliver Wyman, “Into the Great Unknown,” (Nov. 2023) at 11,

10 The Basel Committee specifically proposed that a banking organization with fee-based income or expenses that is greater than 50% of the firm’s unadjusted business indicator would hold capital against 10% of the firm’s fee-based income or expenses that exceeds 50% of its unadjusted business indicator. 2016 Consultative Document at 4. The Associations do not endorse the 2016 consultation’s solution and have proposed our own approach to recalibrating the services component that we believe would better address the issues raised in this letter. However, we have included the Basel Committee’s proposed solution here for illustrative purposes.

11 88 Fed. Reg. 64028, 64167.

12 Bank Policy Institute, The Trillion Dollar Omission in Vice Chair Barr’s Cost Analysis (Oct. 12, 2023), https://bpi.com/the-trilliondollar-omission-in-vice-chair-barrs-cost-analysis/.