As part of the Fundamental Review of the Trading Book, the Basel Committee on Banking Supervision has updated its minimum capital requirements for market risk, which the Committee estimates will result in a weighted average increase of about 22% in total market risk capital requirements.

While we appreciate the many positive revisions in the framework, we remain concerned about certain areas such as equity risk weights not having been lowered, and CTP capitalization not having been addressed. This could have a negative impact on our economy by unnecessarily impeding market activity and restricting the amount of capital available for growth – which means fewer new jobs or less funding for new companies, for example.

We are also concerned about the changes as they relate to the trading book across market risk, counterparty credit risk and CVA. Well-tailored calibration is the key to preserving the liquid and deep capital markets we enjoy in the U.S., so we therefore urge U.S. regulators to take care to not gold-plate the Basel regulations in their implementation.

It is also important to consider changes to the various elements of the capital framework in combination with other regulations. U.S. regulators must ensure there is a level global playing field with respect to regulations more broadly and take into consideration to what extent and under what timeline Basel standards are implemented across the major jurisdictions.

The Basel Committee indicated the revisions were informed by their quantitative impact analyses, making the revised framework an example of a rulemaking body assessing the impact of regulations on markets and making changes to simplify and tailor regulations, without diminishing their efforts to ensure financial stability.

While our reservations over the rules remain strong, conducting a QIS resulted in important changes and we believe more of this type of impact analysis needs to be done.

The minimum capital requirements were one part of a broader strategic regulatory realignment introduced after the financial crisis as a way to enhance financial stability. These broader efforts taken together resulted in significant increases in capital and liquidity and lower leverage, complemented by measures to improve market infrastructures and reduce risks from concentrated exposures and interconnectedness. The standards which were developed at the time greatly improved the resilience of the financial system, which has since proved itself in both real and simulated periods of stress.

The Basel Committee on Banking Supervision estimates its updates will result in a weighted average increase of about 22% in total market risk capital requirements.

It is now time for tailoring, recalibration and harmonization of these rules. Market participants support clear regulation which balances safety and soundness concerns with the efficient functioning of capital markets and economies. Regulators must consider the aggregate impact of rules on the structure and functioning of firms and financial markets, as well as on economic costs, growth, job creation, innovation and competition.

We are encouraged by comments such as those made by the Federal Reserve indicating they will be taking a fresh look at the rules as they stand today and increasing the transparency of regulation. As outlined in our comments to Treasury on capital and liquidity requirements, we believe there are significant issues to address which impact long-term U.S. competitiveness. Capital and liquidity requirements such as the LCR and the proposed NSFR promote certain business lines and types of funding over others without data to justify this unequal treatment. Calibrations of liquidity requirements do not reflect true liquidity characteristics.

“Gold plating” capital and liquidity rules in one jurisdiction that were otherwise designed to be equivalent globally results in fragmentation in global markets. The U.S. G-SIB capital surcharge as compared to the surcharge in other countries is a good example.  Given the globally interconnected nature of our financial system, regulators must address these discrepancies across borders.

As regulators undertake efforts to harmonize regulatory frameworks, we have called for a review of regulations which would: (a) undergo an analysis of regulations and the impact on market efficiency, i.e. unintended consequences; (b) assess the current market environment versus where markets were when rules were written and implemented several years ago; (c) consider the everyday impact on markets, not just prepare for stress environments; and (d) potentially propose changes to reverse the adverse effects of the original rules without releasing focus on ensuring financial stability.

SIFMA and its members fully support appropriately designed and calibrated regulations that deliver financial stability, but which also promote economic growth. We urge U.S. implementation of the Basel rules and other capital regulations to include a fresh, data-based review in accordance with our suggestions. We stand ready to assist policymakers and regulators in this shared endeavor to enhance financial stability while advancing global prosperity.

Kenneth E. Bentsen, Jr. is president and CEO of SIFMA, the voice of the nation’s securities industry. He is also chairman of the Global Financial Markets Association (GFMA), of which SIFMA is the U.S. regional member.

For more of SIFMA’s views on capital and liquidity, visit our Prudential Regulation Resource Center and mark your calendar to join us on June 4 at the annual BPI-SIFMA Prudential Regulation Conference.

Terms to Know: Prudential Regulation

BHC	Bank Holding Company
G-SIB	Global Systemically Important Bank
LEI	Legal Entity Identifier
QIS	Quantitative Impact Study
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B3	Basel III International Regulatory Framework for Banks
CCAR	Comprehensive Capital Analysis and Review
CLAR	Comprehensive Liquidity Analysis and Review
DFA	Dodd-Frank Wall Street Reform and Consumer Protection Act
EMIR	European Market Infrastructure Regulation
MiFID	Markets in Financial Instruments Directive
MiFID II	Markets in Financial Instruments Directive (revised)
MiFIR	Markets in Financial Instruments Regulation
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CET1	Common Equity Tier 1
T1C	Tier 1 Capital
AT1	Additional Tier 1 Capital
T2C	Tier 2 Capital
TLAC	Total Loss-Absorbing Capacity
RWA	Risk-Weighted Assets
CVA	Credit Valuation Adjustment
CTP	Correlation Trading Portfolio
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LCR	Liquidity Coverage Ratio
HQLA	High Quality Liquid Assets
NCOF	Net Cash Outflows
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NSFR	Net Stable Funding Ratio
ASF	Available Amount of Stable Funding
RSF	Required Amount of Stable Funding
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SLR	Supplemental Leverage Ratio
TE	Total Exposure
PFE	Potential Future Exposure
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FRTB	Fundamental Review of the Trading Book