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June 25, 2020

In Unlawfully Eliminating Inter-Affiliate Margin, Bank Regulators Hand Wall Street’s Biggest Banks Nearly $40 Billion, About One-Third of All Regulatory Initial Margin

Thursday, June 25, 2020
Contact: Pamela Russell at 202-618-6433 or

Washington, D.C.  –  Joseph R. Cisewski, Senior Derivatives Consultant and Special Counsel with Better Markets, issued the following statement with respect to the Federal Deposit Insurance Corporation’s (FDIC) elimination of initial margin on inter-affiliate derivatives:

“Margin on derivatives transactions is a critical safeguard for banks and the financial system to manage risks and prevent failures. It’s a little like the down payment on a house or the capital cushion at a bank. Nevertheless, earlier today, the FDIC eliminated initial margin requirements on inter-affiliate derivatives, setting the stage for other bank regulators to join them in granting a gift to Wall Street’s biggest banks in the amount of at least $39.4 billion
“Adding insult to injury, this is an egregious, intentional and knowing lawless action by regulators sworn to uphold the law and to protect depositors. The Dodd-Frank Act mandated ‘both initial and variation margin requirements’ on ‘all’ uncleared swaps and security-based swaps. The bank regulators therefore do not have the legal authority to eliminate initial margin requirements on inter-affiliate derivatives, which is presumably why they neither cited to nor relied upon any valid authorities when they proposed the expansive loophole last year.   
“Furthermore, this new exemption is not only unlawful but dangerous. Unmargined derivatives will be used to move risks into U.S. banks that have custody of U.S. customer deposits and assets. Without the critical protection of initial margin, U.S. banks will more easily engage in regulatory arbitrage and import risks from their derivatives dealing in foreign jurisdictions. Many of these foreign jurisdictions do not have in place regulatory safeguards as comprehensive as the Dodd-Frank Act’s reforms implemented in the U.S. after the 2008 financial crisis as explained in this American Banker Op-ed and our comment letter
“In fact, a group of lobbying organizations for the banking industry has acknowledged that the FDIC just set the stage to eliminate an astonishing one-third of all U.S. regulatory margin on derivatives transactions. That means, in essence, that the FDIC and other banking regulators have unnecessarily increased risks to the U.S. banking system and jeopardized the savings of every American with money deposited at Wall Street’s biggest FDIC-insured banks that are involved in global derivatives dealing. That’s why the law mandated that the bank regulators do precisely the opposite.” 
Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies – including many in finance – to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit
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