The head of US derivatives clearing firm OCC has become the latest to add his voice to the growing chorus of opposition to the Basel Committee’s proposed capital charges, arguing they will impact liquidity which could jeopardise the integrity of the market, according to an FOW report.
Craig Donohue, executive chairman and chief executive officer of Chicago-based OCC, the US equity derivatives clearing firm, said the various Basel II capital reforms, set to take effect internationally in stages over the next two years, are poorly drafted.
He told FOW: “From the industry’s perspective, the most concerning issue is the capital pressure on bank affiliates and clearing member firms, which is having a trickle-down effect on market-makers and liquidity providers.”
Basel III, which is the latest round of capital reforms aimed at banks, is made up of various new charges based on complex calculations such as risk-based capital, liquidity coverage ratio, leverage ratio or the net stable funding ratio.
Individual countries’ regulators are implementing the different requirements at different speeds which is problematic for international firms.
Donohue said: “The risk-weighted assets calculation under Basel as implemented by the US banking regulators have caused a dramatic increase in the amount of capital to be held by bank-affiliated member firms in relation to their proprietary trading and market-maker customers. In some cases, they are as much as six to eight times what they used to be.”
Donohue, who was chief executive of CME Group for eight years until leaving the Chicago-based exchange in 2012, said the capital charges are already increasing the systemic risk in the marketplace.
