International Swaps and Derivatives Association urges recalibration of the US Basel III endgame capital proposal ahead of expected revision

The International Swaps and Derivatives Association (ISDA) published a derivatiViews column by Chief Executive Officer Scott O’Malia setting out the group’s priorities for changes to the US Basel III endgame proposal, which it argues would otherwise produce disproportionate capital increases for trading book activities and force banks to reassess their market participation. ISDA expects a revised proposal to be published soon, moving the process toward finalization and implementation. The commentary highlights three areas where ISDA is seeking calibration changes: keeping internal models viable under the Fundamental Review of the Trading Book (FRTB) by reducing the stringency of the profit-and-loss attribution test and addressing the treatment of non-modellable risk factors; amending the standardized approach for counterparty credit risk to recognize cross-product netting benefits across products including repos and futures, citing the upcoming start of mandatory clearing for certain cash US Treasury securities at end-2026 and repos in mid-2027; and mitigating the combined impact of the endgame proposal and the global systemically important bank (G-SIB) surcharge, which ISDA says would raise capital for US G-SIB client clearing businesses by more than 80%, including via changes to credit valuation adjustment treatment for cleared derivatives and adjustments to the G-SIB surcharge. ISDA indicates that, once revisions are published, its focus will shift to testing the recalibrated framework’s risk sensitivity and working with members on implementation challenges.