ISDA Chief Executive Officer Scott O'Malia offers informal comments on important OTC derivatives issues in derivatiViews, reflecting ISDA's long-held commitment to making the market safer and more efficient.
This week, ISDA hosted a symposium on the future of bank capital in Europe. It was a good time to convene a conference to discuss the latest European Commission (EC) proposals for revisions to the capital requirements directive and regulation. This event didn’t disappoint in terms of insights provided. Our speakers – including senior legislators, regulators and market participants in Europe – spent a lot of time discussing the current negotiations at the Basel Committee on Banking Supervision and the proposals in Europe.
At the start of the year, the Basel Committee announced it needed more time to finalize its latest raft of measures, amid a widely reported disagreement over the level of a proposed output floor. From a policy perspective, European regulators are uncomfortable with an output floor and the reduction of risk sensitivity it would cause – and this uneasiness came across loud and clear from our speakers, along with their support for internal models. There’s also currently uncertainty about the path the new US Administration will take, with media reports suggesting further negotiations at the Basel level may be put on hold until the changing of the guard is complete.
But what struck me was the genuine eagerness for a global agreement, and the hope that a compromise can be found by the Basel Committee that will work for everyone. It serves no one’s interest to have a Basel agreement that lacks global consistency and adherence, or – worse – creates a regulatory imbalance. This would undermine the Basel Committee’s leadership role.
In many respects, it seems to me that both Europe and the US want the same thing. It was clear from our speakers that European policy-makers want a common agreement that strikes a balance between financial stability and economic growth. In other words, the final rules should be risk sensitive to avoid a detrimental impact on market liquidity, and to ensure banks are able to continue to lend to the real economy and provide crucial hedging products to end users.
The EC has proposed revisions to its capital requirements directive and regulation that try to achieve that balance. The proposals contain targeted amendments to the Basel measures that will encourage clearing, ease the capital burden on market-making activities, and reduce the pricing impact on end-user hedging. These types of changes are necessary, as banks will play a crucial role in helping the European Union foster deeper and more liquid capital markets – a key objective of the capital markets union.
These high-level aims – financing the real economy, fostering economic growth, creating jobs and establishing an agreement that offers a consistent a level playing field – are in line with the objectives of the new Trump Administration.
Our speakers at the conference all talked about their desire to have a single global agreement. We agree that is important. A single capital framework means a level playing field, less complexity and lower costs. We would encourage the Basel Committee to consider its final rules with a focus on ensuring economic growth. We also encourage US regulators to consider the European revisions to the Basel measures as their starting point to ensure a more consistent and risk appropriate framework.
Latest
ISDA In Review – August 2026
A compendium of links to new documents, research papers, press releases and comment letters published by ISDA in August 2026.
Remove Bureaucracy from Cross-margin Approvals
Cross-margining programs play a critical role in financial markets. By ensuring margin requirements more closely reflect the actual risk of a portfolio of products, they reduce liquidity strain and improve market efficiency, both of which will become even more important...
Joint Response on CCP Resolution
On September 7, ISDA and FIA responded to a Bank of England (BOE) discussion paper on central counterparty (CCP) resolution. The associations support greater clarity on valuation capabilities prior to a crisis scenario and the boundary between recovery and resolution,...
Expanding Legal Agreement Coverage in the CDM
This paper examines the recent extension of the Common Domain Model (CDM)1 to represent two of the most significant, and previously undeveloped, areas of its legal agreement model: umbrella agreements and contract amendments. Umbrella agreements are widely used to document...
