MFA and SIFMA AMG Submit Letter on eSLR and Stress Buffer Proposals

On May 29, MFA and SIFMA’s Asset Management Group filed a comment letter in response to the Federal Reserve-OCC’s joint proposal to recalibrate the enhanced Supplementary Leverage Ratio (eSLR).

Among several recommendations, the letter’s primary recommendation is for the Federal Reserve and OCC to revise the “total leverage exposure” measure – as used in the Supplementary Leverage Ratio (SLR) denominator, eSLR denominator, Size Indicator of the G-SIB surcharge, total loss absorbing capacity denominator, and long-term debt requirement denominator – so that initial margin provided by a client in a centrally cleared derivatives transaction reduces a banking organization’s exposure arising out of its guarantee of the client’s obligation to the CCP.

The letter also recommends that if the Federal Reserve finalizes its proposed rule to incorporate a stress buffer into certain point-in-time capital requirements, not including the SLR, it should do so without revising the proposal to add a stress buffer to the SLR.

Our buy-side recommendations would more meaningfully reduce the disincentives created by the capital framework for U.S. banking organizations to provide end users with derivatives clearing services, and help ensure that end users can access services such as cleared derivatives to manage or hedge their risks.