What’s on International Treasurer’s radar screen this week.
It’s been a busy week of tea-leaf reading for those following the financial regulatory world. Just what do some regulators mean when they talk about rules? Are they claiming more authority than was given? Will they finish their rule makings on time? Will it all work? International Treasurer will explore these and other questions in the coming weeks.
CFTC over-reach?
The Commodity Futures & Exchange Commission (CFTC) Chairman Gary Gensler has been speaking a lot about his agency’s role in Dodd-Frank rulemaking, and many observers have detected in his words his belief that the CFTC has the authority to impose margin on end users. In recent remarks at a Commission meeting, Mr. Gensler reiterated who would be responsible for what. “Under the Dodd-Frank Act, the Federal Reserve and prudential regulators will be responsible for setting capital and margin for bank swap dealers, while the SEC and the CFTC will be responsible for the nonbank swap dealers and major swap participants [italics ours].”
“He said that he thinks it should be focused on financial end users, though the Fed is the one most directly responsible for making this determination,” said one observer at a risk advisory firm. “The fact that he believes he has the authority is in clear contradiction to congressional intent, as evidenced by the Dodd-Lincoln letter.”
According to the Dodd-Lincoln letter, the legislation related to OTC derivatives “does not authorize the regulators to impose margin on end users, those exempt entities that use swaps to hedge or mitigate commercial risk. If regulators raise the costs of end user transactions, they may create more risk.”
Basel III approves capital and liquidity rules
Following a two-day meeting, the Basel Committee this week said in a statement it had “agreed on the details of the Basel III rules text, which includes global regulatory standards on capital adequacy and liquidity.”
The committee will also publish a summary of the results of its comprehensive quantitative impact study (QIS), conducted over the past year, which will reveal how the new rules will impact banks. Banks were able to submit until the middle of 2010 how financially the rules would affect their business.
After all is said and done, US corporates may see less of an impact of the Basel III rules than previously envisioned, as most US banks are said to be adequately capitalized so won’t curtail lending; also, corporates have good access to funding in other areas, such as the debt markets. Nonetheless, there are still many unknowns in Basel procedure, and even though it aims to “address any unintended consequences,” the coming rules bear watching.