Lucas Underscores the Need for a Full Re-Proposal of Basel Endgame

Today, Congressman Lucas discussed the consequences of Basel Endgame and the need for a full re-proposal with Walt Lukken, the President and CEO of the Futures Industry Association (FIA) and and Tom Sexton, the President and CEO of the National Futures Association (NFA). Stakeholders agree that the banking regulators should re-open the proposal for public comment.   HIGHLIGHTED QUOTES:  Lucas: “Starting with the Basel proposal: An issue I’ve discussed with Chair Behnam, Secretary Yellen, Chairman Powell, and all of the Prudential Regulators, is the impact this will have on our capital markets, including reduced access to derivative products for end-users and further concentration of FCMs. It seems like the Regulators could be open to a re-proposal, but the FDIC and OCC will have to join with the Fed on that final decision. Mr. Lukken, you’re no stranger to the Ag Committee Room, so thank you for joining us and touching on Basel during your testimony. Could you expand on why it’s so important that the Regulators re-open the proposal for public comment?“ Lukken: “Congressman Lucas, you have been a leader on this topic – on the capital and this Committee has been a leader. To point out the obvious fact from the financial crisis which that out markets in clearing in central counterparties actually mitigate risk – they reduce risk in the financial system. And so, capital is an important component of the financial reforms coming out of the financial crisis– that banks should hold more capital for risky activity. But they just have it wrong. I think the financial regulators are over taxing clearing-activity to make it so that there is going to be a capacity issue that banks are going to stop offering this service to hedgers. We heard Travis talk about this, that end-users may have limited access to hedging vehicles to hedge volatility in commodity markets as a result of Basel capital. So, our hope is that prudential regulators are listening to the reasonable voices of CFTC Chair Behnam and others that have said, ‘you have to get this right’. It has to be proportional to the risks brought by our markets, and we’re hoping that that gets fixed in the coming months.” Lucas: “Mr. Sexton, you’re a member of the CFTC’s Global Markets Advisory Committee. One suggestion – among many – that GMAC had for the Commission last month is to hold a roundtable with the bank regulators focused on derivatives issues impacted by Basel. Could you speak broadly to the importance of stakeholder feedback on matters that will have significant impact on markets?”  Sexton: “Thank you, Congressman Lucas. I certainly endorse the concept of GMAC and its recommendation to hold this roundtable to further determine the impact of these capital rules. As Mr. Lukken and Travis have indicated – this is extremely important tot farmers and ranchers and end-users and hedgers – because of the consolidation that may occur among firms if the capital rules are put in place. So stakeholder impact comments are extremely important and is something we should be looking to do.”