“Setting capital requirements for globally active banks is a fine balanc­ing act. As regulators learned during the global financial crisis, insuffi­cient capital creates vulnerabilities in the banking sector that can have damaging consequences in times of stress. However, if banks are required to hold disproportionately high levels of capital, this will con­strain their ability to act as intermediaries, negatively affecting liquidity in financial markets. To avoid both scenarios, policy­makers have a critical responsibility to get the balance right.

“As the final parts of the Basel III capital framework are implemented around the world, striking this balance is more im­portant than ever. As it stands, the draft Basel III endgame package that US regulators presented for consultation in 2023 would tip the balance too far. Based on ISDA’s analysis of the impact on banks’ trading books, there is no doubt that the rules would constrain the capacity of US banks to offer vital intermediary ser­vices and have a negative impact on mar­ket liquidity.”

ISDA CEO Scott O’Malia wrote an article for the Winter 2025 edition of International Banker magazine, in which he explains why the calibration flaws in the Basel III endgame package must be rectified, and why US policymakers should also consider the impact of the proposed rules on market functioning and liquidity, including the provision of central clearing.

Click on the attached PDF to read the article in full.