Walt Luken, president and chief executive officer of the Futures Industry Association, testified last week before the House Agriculture Subcommittee on Commodity Exchanges, Energy and Credit, claiming that Basel III capital requirements “are lessening clearing options for end-user customers who use futures and cleared swaps to manage their business risks.” This is because, said Mr. Luken, the Basel leverage ratio — which dictates the amount of capital a bank should maintain to support a certain level of leverage — is based on a mistaken assumption that client margin posted with banks’ affiliated clearing members can be used by banks without limitation. As a result, banks must maintain extra amounts of capital that makes their affiliated clearing business less attractive.
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