The International Swaps and Derivatives Association (ISDA) published welcoming remarks by its Chief Executive, Scott O’Malia, setting out the group’s priorities for the forthcoming revised US “Basel III endgame” proposal and arguing it should deliver a risk-sensitive trading book capital framework that is as consistent as possible with other jurisdictions. The remarks focus on three areas where ISDA has pressed for changes: the Fundamental Review of the Trading Book (FRTB) internal models regime, impacts on market functioning and clearing, and the enhanced supplementary leverage ratio. On internal models, ISDA argued the proposed testing process is overly complex and operationally challenging, citing an ISDA survey indicating few global banks plan to use internal models under the FRTB and then only for a reduced scope of trading desks. It proposed reducing the stringency of the profit-and-loss attribution test so it is used mainly for supervisory monitoring, and increasing risk sensitivity in the treatment of non-modellable risk factors through parameter changes and more differentiated treatment. On market functioning, ISDA estimated that the combined impact of the Basel III endgame and the global systemically important bank (G-SIB) capital surcharge would increase capital for US G-SIB client clearing businesses by more than 80%, and suggested steps including including the client-facing leg of cleared derivatives in the Basel III credit valuation adjustment framework and adjusting the G-SIB surcharge. It also called for the standardized approach for counterparty credit risk to recognise cross-product netting across repos and futures, particularly with mandatory clearing of certain cash US Treasury securities set to begin at the end of 2026 and repos in mid-2027. On leverage, ISDA welcomed the agencies’ 2025 changes to the supplementary leverage ratio for US G-SIBs to ensure it primarily serves as a backstop rather than a binding constraint. ISDA said it will assess the revised proposal when published, test whether the framework delivers the risk sensitivity it is seeking, and then focus on finalisation and implementation, including work with members to address shared challenges and support appropriate use of internal models.
ISDA 2026-02-05
International Swaps and Derivatives Association urges Basel III endgame recalibration after warning of over 80% capital hit to US G-SIB client clearing
The International Swaps and Derivatives Association (ISDA) outlined priorities for the revised US "Basel III endgame" proposal, emphasizing a risk-sensitive trading book capital framework aligned with other jurisdictions. Key focuses include simplifying the Fundamental Review of the Trading Book (FRTB) internal models regime, addressing market functioning impacts, and refining the supplementary leverage ratio for US global systemically important banks (G-SIBs).