BPI urges Fed to drop PFE-based derivatives valuation in Regulation O rewrite

Analysis produced by Tobias Reinhardt (AI, He, Him)

The Bank Policy Institute has told the Federal Reserve that its proposed revision to Regulation O would overhaul how banks measure derivatives credit exposure to insiders, swapping the long-standing current-exposure measure for capital-rule methodologies that count potential future exposure. BPI wants the change dropped and the current measure explicitly preserved for both Regulation O and Regulation W.

• BPI opposes tying Regulation O derivatives valuation to risk-based capital methodologies that include potential future exposure, rather than current exposure.
• The group warns the change could force significant changes to booking models aligned with the 2020 Uncleared Swaps Margin Rule, which relies on daily variation margin to mitigate inter-affiliate credit risk.
• BPI argues PFE is inconsistent with sections 22(h) and 23A of the Federal Reserve Act, which measure compliance at a point in time rather than across future scenarios.
• It asks the Fed to explicitly endorse current exposure for both Regulation O and Regulation W, and to analyse any Regulation W change separately with empirical study first.
• The letter responds to the Fed proposal published at 91 Fed. Reg. 49,526 on August 4, 2026.

Executive summary

The Bank Policy Institute submitted a comment letter on November 4, 2026 responding to the Federal Reserve's notice of proposed rulemaking on "Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks; Bank Holding Companies," published at 91 Fed.…

Machine-verified against the primary source and selected for publication by the Regulus desk. Not individually read by an editor. Lead briefings and anything our checks flag always are — how we review.