WASHINGTON, April 4 (Reuters) - U.S. lender Capital One Financial Corp said on Saturday it will not use a waiver granted by the U.S. Commodity Futures Trading Commission (CFTC) after commodity price volatility lifted the bank’s derivatives exposure toward a key regulatory threshold.
The regulatory exemption relieved the firm from a requirement to register as a “Major Swap Participant”, or MSP, even though its growing energy swaps exposure was expected to require it to do so by the end of the next quarter. The CFTC had announced the relief for an unnamed lender two weeks ago, and Reuters later reported Capital One was the bank.
“We are not an MSP,” a spokesperson for the bank said in an emailed statement on Saturday. “To alleviate confusion, we are withdrawing our waiver request and will register as derivative volumes require.”
The registration is related to Capital One’s commercial lending to the oil and gas industry, a relatively small part of its overall business. The bank enters into commodity swaps with energy clients to help them mitigate the risk of energy price swings and the related borrowing risks.
While those trades typically do not bring the lender’s swaps exposure anywhere close to the CFTC’s registration threshold, a huge plunge in energy prices put it on track to hit the threshold by the end of the next quarter, the agency said in a letter on March 20.
The waiver was temporary, but sparked worries that regulators are going too easy on banks in a bid to prop up lending, potentially exposing them to more risk down the road if energy prices do not rebound.
Following the 2007-2009 financial crisis during which several major institutions were toppled by their derivatives exposure, Congress created a slew of swap trading laws to reduce systemic risk and increase the visibility of the market.
Capital One’s commercial bank “does not engage in speculative derivatives trading” and its normal hedging activity has not changed, the bank spokesperson said on Saturday.
The bank enters into hedges with banks to reduce exposure to commodity risk from its hedges with oil and gas clients, reducing exposure to commodity risk to “essentially zero, and we are subject to no outstanding margin calls,” she said. (Reporting by Chris Prentice Editing by Alistair Bell)
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