BETTER MARKETS CALLS ON TOUGH CAPITAL STANDARDS FOR NONBANKS

Better Markets appreciates the proposal the Commodity Futures Trading Commission issued today that would bring new transparency to capital standards for swap dealers and major swap participants – such as energy firms, agricultural companies, high-frequency traders and hedge funds. These standards would help prevent a default similar to American International Group that put the financial system at risk.

But Better Markets has concern that the proposed rule is too permissive by allowing swap dealers and major swap participants to use a “tangible net worth” as a measure of capital, counting such items as factories and oil in the ground. That insufficiently reduces risk, and could lead to regulatory arbitrage in the marketplace as firms look to evade tougher rules. Instead, the agency should consider a higher standard, such as liquid assets, to prevent another AIG from happening again.