March 15th, 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/RIN 3064–AE80
Federal Deposit Insurance Corporation
550 17th Street NW
Washington, DC 20429

Legislative and Regulatory Activities Division
Office of the Comptroller of the Currency
400 7th Street SW Suite 3E–218
Washington, DC 20219

Re: Standardized Approach for Counterparty Credit Risk (“SA-CCR”)

Board: Docket No. R-1629
FDIC: RIN 3064-AE80,
OCC: Docket ID OCC-2018-0030

Dear Sir/Madam,
The International Swaps and Derivatives Association, Inc. (“ISDA”), the Securities Industry and Financial Markets Association (“SIFMA”), the American Bankers Association (“ABA”), the Bank Policy Institute (“BPI”), and the Futures Industry Association (“FIA”) (together, the “Associations”) appreciate the opportunity to comment on the above-referenced proposal (the “Proposed Rulemaking”) from the Board of Governors of the Federal Reserve System (“FRB”), the Federal Deposit Insurance Corporation (“FDIC”), and the Office of the Comptroller of the Currency (“OCC”) (together, the “Agencies”).1

SA-CCR is a significant development that will have multiple implications for the U.S. capital framework as it replaces the current exposure method (“CEM”). In addition to replacing CEM for calculating Counterparty Credit Risk (“CCR”) default standardized risk weighted assets (“RWA”), the Proposed Rulemaking addresses changes to the cleared transaction framework and the supplementary leverage ratio (“SLR”) 2 and includes a proposal for the OCC to amend its lending limit rule3 to use SA-CCR. The Proposed Rulemaking is also relevant for the use of SA-CCR in the Credit Valuation Adjustment (“CVA”) risk capital framework4 and as the exposure amount for derivatives in the output floor.5We thank the Agencies for their continued engagement with the Associations and our members to understand the various implications of SA-CCR and required data analysis. We generally support the move from CEM to a more risk-based measure and believe that an appropriately revised version of SA-CCR would be a major improvement over the current framework. However, there are elements of the Proposed Rulemaking that could have a significantly negative impact on liquidity in the derivatives market and hinder the development of capital markets. We are particularly concerned about the potential cost implications for commercial end-users (“CEUs”)6, who benefit from using derivatives for hedging purposes. Any requirements that constrain the use of derivatives may affect the ability of CEUs to hedge their funding, currency, commercial and day-to-day risks, which would in turn weaken their balance sheets and make them less attractive from an investment perspective.

In order to inform our comments regarding the anticipated impact of the Proposed Rulemaking, the Associations have conducted an in-depth Quantitative Impact study (“QIS”) to demonstrate the impact of the Proposed Rulemaking, with input from nine financial institutions which account for 96% of total derivatives notional outstanding at the top 25 bank holding companies.7 The QIS results show that exposure at default (“EAD”) would remain flat8, whereas CCR default standardized RWA would increase by 30%9 as compared to CEM. The QIS results also indicate a three10 basis points decrease in the overall SLR across the participating banks; the impact is much greater at the derivatives business level. This data clearly demonstrates the need for changes to the Proposed Rulemaking to ensure that SA-CCR more accurately reflects risk in the derivatives market.

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1 Standardized Approach for Calculating the Exposure Amount of Derivative Contracts; Notice of Proposed Rulemaking, 83 Fed. Red. 64,660 (Dec. 17, 2018), available at https://www.govinfo.gov/content/pkg/FR-2018-12-17/pdf/2018-24924.pdf.
2 Regulatory Capital Rules: Regulatory Capital, Revisions to the Supplementary Leverage Ratio; Final Rule, 79 Fed. Reg. 57,725 (Sept. 26, 2014), available at https://www.govinfo.gov/content/pkg/FR-2014-09-26/pdf/2014-22083.pdf.
3 Lending Limits; Office of the Comptroller of the Currency Final Rule, 78 Fed. Reg. 37,930 (June 25, 2013), available at https://www.occ.gov/news-issuances/federal-register/78fr37930.pdf.
4 Basel Committee on Banking Supervision, Basel III: Finalising post-crisis reforms, 109 (Dec. 2017), available at https://www.bis.org/bcbs/publ/d424.pdf.
5 Basel Committee on Banking Supervision, Basel III: Finalising post-crisis reforms, 137 (Dec. 2017), available at https://www.bis.org/bcbs/publ/d424.pdf.
6 Commercial end-users or CEUs as used herein include those entities exempt from the FRB’s non-cleared margin requirements under 12 C.F.R. § 237.1(d) (which exemptions are also found in the OCC’s and FDIC’s non-cleared margin requirements). CEUs are also referred to in some contexts as non-financial entities or non-financial end users. See 80 Fed. Reg. 74,916, 74,919 (Nov. 30, 2015).
7 Office of the Comptroller of the Currency, Quarterly Report on Bank Trading and Derivatives Activities (Feb. 2018), available at https://www.occ.gov/topics/capital-markets/financial-markets/derivatives/pub-derivatives-quarterly-qtr3-2018.pdf
8 See Appendix 2.11, Quantitative Impact Study Results, Index T1_07.
9 See Appendix 2.11, Quantitative Impact Study Results, Index T1_08.
10 See Appendix 2.11, Quantitative Impact Study Results, Index T1_14.