Lucas: Basel Endgame Will Penalize Central Clearing

Washington, D.C. –  At today’s House Financial Services Committee hearing, Congressman Frank Lucas (OK-03) questioned FDIC Chair Gruenberg and Federal Reserve Vice-Chair Barr on the consequences of the Basel Endgame proposal.

Specifically, Congressman Lucas brought to attention his concern that the Basel requirements will constrain the capacity of banks to offer central clearing. He has previously pressed this issue with Federal Reserve Chair Powell, Treasury Secretary Yellen, and CFTC Chair Behnam.

IGHLIGHTED QUOTES:

Lucas: “Clearing is a risk-reducing function for the market, but the Endgame proposal actively penalizes this activity. How do you reconcile this policy contradiction?”

Gruenberg: “It is one of the key issues in the report… We have received a lot of comments on this issue. I acknowledge the points you are raising. This is still a work in progress as Chairman Barr has indicated. We are taking careful attention to all of the comments we have received, including in regard to this.”

Barr: “We are taking those comments very seriously. I agree with you central clearing is an important way that we reduce risk in the financial system. We’ve received comments on client clearing derivatives and a number of areas of the proposal and we are taking those quite seriously.”

Lucas: “I believe your agencies have a responsibility to ensure bank capital standards do not unnecessarily discourage capital clearing. Market participants in the clearing side and the end user side are warning us of what’s to come. Again, I urge a complete reproposal here: make the material changes necessary and then allow Congress and the public to weigh in. The consequences of getting this wrong are too severe.”

Click here or on the image above to watch Congressman Lucas’s full line of questioning.

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