Non-financial commercial companies often secure their derivatives transactions with financial institutions in a manner other than posting cash margin, such as by granting liens on a commercial end-user’s assets. A proposed regulation from the US federal banking regulators to revise risk-based capital rules regarding derivatives in order to implement an international standard may have the collateral effect of adversely affecting the ability of commercial-end users to continue to enter into such transactions with banking organizations.

In a recent New York Law Journal column, Kathleen Scott, a senior counsel in the New York office of Norton Rose Fulbright, discusses the proposal, and the comments the regulators have received from commercial end-users that set out the various practical consequences that could result from adoption of the rule as currently proposed.