Lucas Statement on Inter-Affiliate Margin Requirements
Washington, D.C. – Today, Congressman Frank Lucas (OK-03) released the following statement after the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) finalized a proposed rule to amend burdensome inter-affiliate swap margin requirements:
“In the aftermath of the financial crisis of 2008, Congress hurriedly mandated that regulators establish capital and margin requirements for U.S. financial institutions and their non-clear swaps, hampering end users and sidelining billions worth of capital. While providing a responsible and sound regulatory framework is critical of Congress and regulators, it shouldn’t have come with Dodd-Frank’s consequences that harm energy, agriculture, and other end users and limit access to capital for the American economy,” said Congressman Lucas.
Lucas continued, “For years there has been bipartisan agreement that inter-affiliate margin requirements are too stringent and hamstring financial transactions. Today’s common-sense reform ensures that these consequences are no longer passed down to end users and ensures our institutions are consistent with international standards while remaining financially sound.
I’m pleased to see the exemption granted today by regulators and look forward to continuing efforts providing common-sense regulatory relief.”
Inter-affiliate swaps typically are used for internal risk management purposes, by transferring risk to a centralized risk management function within the firm. The finalized proposal gives financial institutions additional flexibility to allocate collateral internally, supporting prudent risk management strategies that support safety and soundness.
Lucas has long been an advocate for harmonizing U.S. inter-affiliate margin requirements in order to ensure U.S. regulations are consistent with international standards and free-up significant amounts of sidelined capital.
As Chairman of the House Committee on Agriculture, Lucas led Committee efforts to amend portions of the Dodd-Frank Wall Street Reform and Consumer Protection Act as it related to Commodity Futures Trading Commission (CFTC) inter-affiliate margin regulations.
In January of 2017, Lucas introduced an amendment to the CFTC reauthorization bill, H.R. 238, the Commodity End-User Relief Act, which exempted initial margins on inter-affiliate swaps. The amendment was agreed to and the Commodity End-User Relief Act was passed by the House.
In May of 2019, Lucas led a letter with his Republican colleagues of the House Committee on Financial Services to Federal Reserve Chairman Jerome Powell, FDIC Chairman Jelena McWilliams, OCC Comptroller Joseph Otting, Farm Credit Administration Deputy Director of Regulatory Policy Barry Mardock, and Federal Housing Finance Agency General Counsel Alfred Pollard urging regulators to modify inter-affiliate margin requirements.
Lucas applauds the actions of the FDIC and the OCC and looks forward to the Federal Reserve, Farm Credit Administration, and the Federal Housing Finance Agency following suit, further supporting prudent risk management strategies that ensure safety and soundness.