ARLINGTON, Va., Jan. 16, 2024 — In comments submitted today to federal banking agencies, the National Grain and Feed Association (NGFA) said recent proposals to overhaul bank capital rules would increase costs for accessing cleared derivatives markets.
“NGFA’s members and their customers depend on derivatives markets to hedge their risks and central clearing provides agricultural hedgers with confidence that they can trade contracts without fear of loss if their counterparty defaults,” noted NGFA President and CEO Mike Seyfert in comments submitted to the Board of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC). “U.S. banks are major contributors to the clearing system, and we are concerned a contraction in the availability of clearing services will have a disproportionate impact on agriculture.”
In September 2023, the Board, the FDIC, and OCC proposed a rule to increase the capital requirements applicable to large banking organizations and those with significant trading activity. The Board also issued a separate proposal that identifies and establishes risk-based capital surcharges for global systemically important bank holding companies (GSIBs).
“If the proposals are implemented as currently drafted, NGFA is concerned GSIBs will cease providing futures commission merchant (FCM) services,” NGFA noted.
“The FCM capacity GSIBs bring is necessary for hedging risk and we strongly urge the Board to modify the proposals to remove the impact on derivatives and risk management tools that end-users rely upon,” NGFA concluded. “We urge you to modify the proposals so that they do not disincentivize banks from providing this important service to their customers.”
NGFA and several other agricultural groups submitted comments in December outlining their concerns as an industry. They noted that the strength of central clearing depends on the participation of banks and other institutions as members of clearinghouses. The proposals could reduce the already low number of firms available to provide clearing services to agricultural end-users.
Read NGFA’s full comments here.