The Commodity Futures Trading Commission’s proposal yesterday to maintain the swap dealer de minimis threshold at $8 billion on a permanent basis would avert significant unnecessary costs, according to a recent study. Were the threshold to return to $3 billion at the end of 2019 — as it would without CFTC action — the CFTC’s swap dealer regulations would only cover 0.1 percent more of the total swaps market, but registrants would see $129.6 million in incremental recurring costs, on a present value basis, over a 10-year period. The American Bankers Association commissioned the study from NERA Economic Consulting.
In its report, NERA suggested that metrics other than notional activity measure more directly the risk exposure of a particular institution and are thus useful in considering thresholds for the additional regulation provided by swap dealer registration. NERA analyzed publicly available data on three metrics that serve as measures of uncollateralized exposure: total net current credit exposure, net current credit exposure from banks and gross negative fair value. NERA also suggested the insured depository institution exception would operate more consistently with policy objectives if it better matched the way banks provide swaps to borrowing customers.
ABA has long urged the CFTC to evaluate the need for swap dealer registration based on risk measures rather than artificially selected numerical thresholds and will continue to engage with the CFTC during the public comment process. For more information, contact ABA’s Ananda Radhakrishnan.