SIFMA Submission to House Financial Services Committee on Capital Proposals

Why It Matters

Aligning capital rules with real‑world risk protects market liquidity while preventing unnecessary burdens on smaller institutions, directly influencing the cost of credit and derivative access for U.S. businesses.

Key Takeaways

• Support capital calibration to actual risk, avoiding excessive conservatism
• Recognize diversification benefits under FRTB for reduced portfolio risk
• Include cross‑product netting and margining to improve capital efficiency
• Exempt commercial end‑user derivatives from CVA capital charges
• Tailor requirements to systemic risk, shielding smaller banks from undue burden

Pulse Analysis

The Federal Reserve, OCC and FDIC are revisiting the bank capital framework for the first time since the 2023 overhaul, aiming to balance financial stability with market efficiency. SIFMA’s submission highlights that while regulators have made meaningful strides, the next iteration must reflect the nuanced risk profile of modern banks, especially those engaged in capital‑markets activities. By calibrating capital buffers to actual exposure, the system can avoid the drag of blanket conservatism that historically hampers credit flow and market depth.

Key recommendations focus on four technical levers. Recognizing diversification under the Fundamental Review of the Trading Book (FRTB) would lower capital charges for well‑balanced portfolios, while full net‑product netting and margining can free up capital tied up in Treasury and derivatives positions. An exemption for commercial end‑users from Credit Valuation Adjustment (CVA) capital would keep hedging tools affordable for corporates, preserving operational risk management. Finally, scaling requirements to systemic risk ensures that community banks and mid‑size lenders are not penalized for activities that pose limited systemic threats.

If adopted, these adjustments could sustain liquidity in Treasury markets, lower financing costs for businesses, and encourage continued innovation in financial products. Conversely, a failure to incorporate SIFMA’s suggestions may lead to tighter credit conditions and reduced derivative usage, slowing economic growth. Policymakers now face a trade‑off: enforce stricter buffers for safety or enable a more flexible capital regime that supports the broader economy. The outcome will shape the competitive landscape for U.S. banks and the resilience of the nation’s capital markets.