The International Swaps and Derivatives Association (ISDA) published a derivatiViews commentary by Chief Executive Officer Scott O’Malia arguing that US capital reforms should recognise the risk-reducing benefits of cross-product netting so that bank intermediation capacity is not constrained, including as regulators propose changes to the enhanced supplementary leverage ratio. ISDA highlights that many banks have cross-product netting agreements that allow net settlement across derivatives and repo-style transactions, reducing counterparty credit risk, but the US capital framework does not recognise these benefits under the Standardized Approach for Counterparty Credit Risk (SA-CCR), which all banks would have to use under US Basel III endgame proposals. It argues this can misalign capital with risk and strain balance sheets, with potential implications for market liquidity, particularly in the US Treasury market where issuance is cited as nearly USD 30 trillion and growing and where the Securities and Exchange Commission’s Treasury clearing mandate from end-2026 is expected to increase demand for client clearing. The commentary also points to central counterparty cross-margining initiatives and warns that, without comparable recognition in capital rules, banks may either require customers to post the full margin amount or absorb higher capital requirements, undermining cross-margining efficiencies. ISDA says addressing the issue would require revisions to SA-CCR, most likely through a Basel III endgame re-proposal, noting that SA-CCR also feeds into other requirements including the supplementary leverage ratio and should better reflect offsets achievable under legally enforceable cross-product master netting agreements, including documentation that allows derivatives and securities financing transactions to be documented under a single ISDA Master Agreement.
ISDA 2025-09-15
International Swaps and Derivatives Association urges US regulators to revise SA-CCR to recognise cross-product netting in capital rules
The International Swaps and Derivatives Association (ISDA) argues that US capital reforms should recognize the risk-reducing benefits of cross-product netting to avoid constraining bank intermediation capacity, especially with proposed changes to the enhanced supplementary leverage ratio. ISDA emphasizes that the current US capital framework under the Standardized Approach for Counterparty Credit Risk (SA-CCR) overlooks these benefits, potentially misaligning capital with risk and affecting market liquidity, particularly in the US Treasury market.