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TCH Advises Against Removal of AOCI Filter

The Clearing House Association and the ABA filed comment letter with the Federal Reserve Board cautioning the Board against removing the existing filter of certain unrealized gains and losses on financial instruments. The letter argues, among other things, that removal of the AOCI filter will likely: (i) cause banks to shorten the duration of their investment portfolios, (ii) negatively impact banks’ regulatory capital in a rising interest rate environment, decreasing the ability of banks to extend credit, and (iii) have a larger impact on regulatory capital when combined with other aspects of the Basel III capital framework. While TCH supports maintaining the existing AOCI filter, our letter also requests that to the extent the Board alters the filter, that the filter remain in place at least for certain high-quality liquid assets.