Featured Product

    ESRB Presents Policy Options on Margins and Haircuts for Derivatives

    January 09, 2020

    ESRB published a report on mitigating the procyclicality of margins and haircuts in derivatives markets and securities financing transactions. The report provides new analysis and sets out possible policy options to address systemic risks arising from the procyclicality associated with margin and haircut practices. ESRB is mindful that the implementation of these policy options would require further work and engagement with market participants and international fora. This report expands on the work of the 2017 report on the macro-prudential use of margins and haircuts.

    ESRB is now placing greater emphasis on policy options aimed at reducing liquidity strains during times of market stress than on those that constrain the build-up of leverage during boom. The policy options in consideration are as follows:

    • Pass-through, by central counterparties, of any intraday variation margin collected in the course of the same day
    • Introduction of initial margin floors in both centrally and non-centrally cleared derivatives markets
    • Reduction of risks of procyclicality in client clearing by limiting the discretion of client clearing service providers toward their clients
    • Introduction of adequate notice periods to changes in collateral haircuts and eligibility
    • Introduction of a cash collateral buffer for market participants active in centrally and non-centrally cleared derivatives markets
    • Mandatory use of initial and variation margins as risk mitigation techniques in non-centrally cleared securities financing transaction markets

    ESRB intends to perform further work to analyze the functioning and impact of these policy options. This could include an assessment of the policy options (potentially using new data sources), analysis of any side effects they may have, and a further assessment of interaction between the options and the existing regulations. Four of the options identified—the mandatory pass-through of intraday variation margin, initial margin floors, the strengthening of client clearing, and guidance on notice periods—would require changes to the regulatory framework for centrally cleared and non-centrally cleared derivatives. By contrast, introducing cash collateral buffers for entities engaging in derivatives transactions would require changes to the prudential rules that apply to banks, insurers, and other financial entities. The policy option on bilateral securities financing transactions, which is an extension of the globally agreed safeguards applied to derivatives transactions, would require the development of a new regulatory framework. In identifying these options, ESRB is mindful that further work and engagement with regulatory standard-setters and industry representatives is needed.

     

    Related Links

    Keywords: Europe, EU, Banking, Insurance, Securities, Procyclicality, Derivatives, Securities Financing Transactions, Systemic Risk, CCPs, Initial Margin, Variation Margin, Haircuts, ESRB

    Related Articles
    News

    EBA Analyzes Impact of Unwind Mechanism of Liquidity Coverage Ratio

    EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.

    November 19, 2020 WebPage Regulatory News
    News

    ECB Outlines Views on Possible Changes to AnaCredit Rule and TLTROs

    In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.

    November 19, 2020 WebPage Regulatory News
    News

    IASB Begins First Phase of Post-Implementation Review of IFRS 9

    IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.

    November 18, 2020 WebPage Regulatory News
    News

    FSB Report Examines Progress in Resolvability of Systemic Institutions

    FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.

    November 18, 2020 WebPage Regulatory News
    News

    EBA Benchmarks National Insolvency Frameworks Across EU

    EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.

    November 18, 2020 WebPage Regulatory News
    News

    FSB Reports Assess Impact of Pandemic on Financial Stability

    FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.

    November 17, 2020 WebPage Regulatory News
    News

    RBNZ Consults on Implementation of Capital Review Changes

    RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.

    November 17, 2020 WebPage Regulatory News
    News

    IASB Announces Andreas Barckow as the New Chair from July 2021

    The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.

    November 17, 2020 WebPage Regulatory News
    News

    HKMA Consults on Capital Rules for Bank Equity Investments in Funds

    HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.

    November 17, 2020 WebPage Regulatory News
    News

    ESRB Supports Extension of Macro-Prudential Measure by Swedish FSA

    ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).

    November 17, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 6153