Industry warns Basel III 'endgame' proposals could raise costs and strain clearing capacity

Industry representatives, exchanges and end‑users told GMAC that the Basel III 'endgame' and related proposals could materially increase capital charges for the largest U.S. banks, with significant consequences for derivatives clearing, treasury market liquidity and corporate hedging.

Joseph Hang, representing FIA and ISDA interests, said the draft proposals could raise capital for the largest banks by between 19% and 30% depending on estimates and would hit derivatives and cleared activities especially hard. "These proposals would increase the capital costs associated with client clearing by more than 80%," he said, citing industry studies.

Tradeweb's head of market structure, Liz Kirby, said higher capital requirements could reduce the ability and willingness of banks to act as liquidity providers across asset classes, which risks greater market fragmentation if U.S. requirements diverge from other jurisdictions. She flagged potential knock‑on effects given recent SEC actions affecting Treasury dealer registration and repo clearing mandates.

Daniel Gallagher, representing electric cooperatives, warned that higher capital requirements tied to transactions with non‑public entities would increase hedging costs for not‑for‑profit utilities and could reduce access to hedges essential to protect consumers from price spikes.

Reggie Griffith, speaking for agricultural merchants, said a further contraction of large bank‑owned FCMs could leave only a handful of firms able to underwrite large commercial positions and might threaten the FCM/clearing model for futures markets.

Panelists urged the CFTC to engage other U.S. prudential regulators, convene roundtables and submit comments during the rulemaking process to ensure rule calibration accounts for clearing capacity, liquidity and end‑user hedging needs.