Mark Carney, Governor of the Bank of England, raised concerns about the impact that the Basel III leverage ratio calculation for segregated customer margin will have on client clearing.
Speaking during an appearance before the European Parliament's committee on economic and monetary affairs, Carney warned that if the leverage ratio calculation restricts the willingness of clearing firms to provide clearing services, "then we are not getting the full benefits of the system." He asserted that this issue should be a top concern when implementing the new capital standards.
"There are few unintended consequences of regulation at the international level. This is one that does need to be considered and we will be considering it through the appropriate Basel processes," Carney said in response to a question posed by Committee Member Kay Swinburne.
In related news, U.S. regulators expressed conflicting views on the leverage ratio issue at a Congressional hearing on Dec. 8. Tim Massad, the chairman of the Commodity Futures Trading Commission, stated that the Basel Committee should reconsider the treatment of customer collateral and recognize that it reduces a clearing firm's exposure to a clearinghouse. In contrast, two senior banking regulators defended the current treatment and emphasized the importance of maintaining strong capital ratios.
The comments from the U.S. regulators came in response to questions from Representative Frank Lucas, a Republican from Oklahoma, who warned that the current treatment would reduce the number of firms available to clear trades for agricultural, energy and other commodity end-users.