On January 16, ISDA and the Securities Industry and Financial Markets Association (SIFMA) submitted a response to a consultation by the US Federal Reserve on proposed changes to the G-SIB surcharge.

The response raises concerns that the revised G-SIB surcharge would lead to inappropriately high capital requirements for banks offering client clearing services, potentially discouraging them from participating in this business and contravening a long-standing policy objective to promote central clearing.

Specifically, the response argues that client derivatives transactions cleared under the agency model should not be included in the complexity and interconnectedness categories of the G-SIB surcharge calculation. Failure to make this change would raise capital requirements across six G-SIBs that contributed to a QIS by $5.2 billion.

The associations also recommend:

• The standardized approach for counterparty credit risk alpha factor should not be included in the interconnectedness indicator calculations.
• Cross-jurisdictional activity indicators should not include derivatives exposures. At a minimum, derivatives exposures should be net of cash and non-cash collateral in the cross-jurisdictional activity indicators.