Prudential regulation requires banking organizations to prudently measure and manage risks, hold adequate capital and liquidity, and have in place workable recovery and resolution plans.

Our regulatory regime must account for the vital role the capital markets play in providing credit and financing the real economy, particularly as regulators consider the finalization of elements of the Basel III Endgame and the GSIB surcharge proposals, especially including the Fundamental Review of the Trading Book (FRTB) and Credit Valuation Adjustment (CVA) of the Basel III Endgame. Those rules must be implemented in a manner that does not overly penalize banks’ capital markets activities, which in turn could reduce liquidity in vital corporate and other funding markets, thereby hurting growth in the real economy.

SIFMA supports appropriate regulation of the capital markets and their participants by both market regulators, who have decades of experience in promulgating rules and supervising the marketplace, as well as prudential regulators. Relative to the international Basel standards, U.S. prudential rules generally impose significantly higher capital and liquidity requirements on banking organizations with significant capital markets operations. This has increased costs to banking organizations and the economy as a whole and may have reduced market depth for a wide variety of corporations and other end-users, particularly during periods of economic stress.

This has also had another effect: transforming U.S. banking regulators into impactful supervisors of the capital markets along with the oversight role traditionally played by the SEC and CFTC. This has created duplications in the capital and liquidity requirements between market and prudential regulators as well as lessened the efficiencies by increasing costs to firms and, in turn, end users. It is thus crucial to align and allow for mutual recognition of, to the extent possible, the capital and liquidity requirements set out by the U.S. banking regulators and the market regulators.

B3E Blog Series

Read SIFMA’s blog series on the Basel III Endgame reforms to explore the impact of U.S. bank capital requirements on the capital markets:

• Part 1: Current Regulatory Capital Requirements Applicable to US Banks
• Part 2: How Basel III “Endgame” Reforms Will Transform US Capital Requirements
• Part 3: Identifying an Optimal Level of Capital and Evaluating the Impact of Higher Bank Capital Requirements on US Capital Markets
• Part 4: Explaining the Overlap Between the FRTB and the Global Market Shock
• Part 5: The Basel III Endgame’s Potential Impacts on Commercial End Users
• Part 6: Understanding the Proposed Changes to the US Capital Framework
• Part 7: The Federal Reserve Should Revise the US GSIB Surcharge Methodology to Reflect Real Risks and Support the Economy
• Part 8: A Rejoinder on the Need for Trading Book Capital Increases
• Part 9: The Federal Reserve Should Remove Gold-Plating in the Basel 3 Endgame 
• Part 10: How the Basel III Endgame Could Impair Securitization Markets and Harm US Businesses and Consumers
• Part 11: Revisiting US Treasury Market Capacity and Resiliency: Part I – The Impact of Rising Debt Levels and Constrained Dealer Capacity on Market Resiliency
• Part 12: Revisiting US Treasury Market Capacity and Resiliency: Part II – Evaluating the Likely Impact of the Basel III Endgame and Other Recent Regulatory Proposals on the Treasury Markets
• Part 13: Why the Federal Reserve Should Pay Particular Attention to Banks’ Capital Markets Activities When Deliberating Revisions to the Basel III Endgame Proposal
• Part 14: How the US GSIB Surcharge and Basel III Endgame Proposals Would Adversely Impact ETF Markets
• Part 15: Our Take on PwC’s Assessment of the US Basel III Endgame Proposal

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