ARLINGTON, VIRGINIA, US — The National Grain and Feed Association (NGFA) is asking federal banking agencies to modify proposals to change bank capital rules that could increase costs for accessing cleared derivatives markets, a tool used by agricultural hedgers.
NGFA members and their customers use derivatives markets to hedge risks and central clearing provides confidence that contracts can be traded without fear of loss in the event of defaults, said Mike Seyfert, president and chief executive officer of the NGFA.
“US banks are major contributors to the clearing system, and we are concerned a contraction in the availability of clearing services will have a disproportionate impact on agriculture,” Seyfert said in comments submitted to the Board of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
In September 2023, the board, the FDIC, and OCC proposed a rule to increase the capital requirements applicable to large banking organizations and those with significant trading activity. The board also issued a separate proposal that identifies and establishes risk-based capital surcharges for global systemically important bank holding companies (GSIBs).
“If the proposals are implemented as currently drafted, NGFA is concerned GSIBs will cease providing futures commission merchant (FCM) services,” the NGFA said.
“The FCM capacity GSIBs bring is necessary for hedging risk and we strongly urge the board to modify the proposals to remove the impact on derivatives and risk management tools that end-users rely upon,” the NGFA said. “We urge you to modify the proposals so that they do not disincentivize banks from providing this important service to their customers.”
The NGFA and several other agricultural groups submitted comments in December outlining their concerns as an industry. They noted that the strength of central clearing depends on the participation of banks and other institutions as members of clearinghouses. The proposals could reduce the already low number of firms available to provide clearing services to agricultural end-users.
