Waters, Brown warn regulators not to weaken margin rules

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WASHINGTON — The top Democrats on the House and Senate banking panels are urging regulators not to weaken initial margin requirements for swaps transactions between depository institutions and their affiliates.

House Financial Services Committee Chairwoman Maxine Waters, D-Calif., and Sen. Sherrod Brown of Ohio, the top Democrat on the Banking Committee, warned heads of the three federal banking regulators that weakening the requirements “would harm financial stability and U.S. taxpayers.”

“As you know, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act in the wake of the 2008 financial crisis to ensure that banks would no longer be able to gamble on risky derivatives, like swaps, and expect to get bailed out by the government when they lost those bets,” the lawmakers wrote in letters to the heads of the Federal Deposit Insurance Corp., Federal Reserve Board and Office of the Comptroller of the Currency.

Waters and Brown said they are concerned about offshore risks from swaps transactions affecting U.S. affiliates in light of the United Kingdom's decision to leave the European Union.

Their warning comes as regulators have also proposed tailoring capital requirements for the largest banks, including changes to the enhanced supplementary leverage ratio.

“These actions, here and abroad, will result in a reduced amount of funds held by U.S. banks and their foreign affiliates to safeguard taxpayers from another financial crisis where they, not the banks, will be left to foot the bill,” the lawmakers wrote. “Expanding the inter-affiliate swap exemption to all transactions would drain even more resources from insured depository institutions and increase the risk of a future taxpayer bailout still further.”

But the financial services industry has argued that weakening the initial margin requirements would reduce costs for consumers and businesses.

In an op-ed last week, the heads of the Financial Services Forum and the Securities Industry and Financial Markets Association argued that the requirement that banks post an initial margin based on swaps between their affiliates should be “revisited and ultimately removed.”

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Margin requirements Regulatory relief Credit derivatives Maxine Waters Sherrod Brown House Financial Services Committee Senate Banking Committee Federal Reserve FDIC OCC