BCBS is consulting on two technical amendments to the rules on minimum haircut floors for securities financing transactions, or SFTs. The technical amendments seek to address an interpretative issue related to collateral upgrade transactions and to correct a misstatement of the formula used to calculate haircut floors for netting sets of securities financing transactions. The comment period on the proposed technical amendments ends on March 31, 2021.
BCBS is consulting on technical amendments related to chapter CRE56 of the consolidated Basel framework, which sets out the calculation of minimum haircut floors on securities financing transactions. CRE56 requires banks to check that the haircuts applied to collateral in their securities financing transactions comply with a set of minimum floors. CRE56 includes certain exemptions from the haircut floor requirements. For cash-collateralized securities lending transactions, CRE56.4 includes an exemption if the counterparty that receives the cash from the bank reinvests it in a way that meets the specified minimum standards. For collateral upgrade transactions, CRE56.5 specifies that banks that lend securities are exempted from the haircut floors on collateral upgrade transactions if they are unable to re-use, or provide representations that they do not and will not re-use, the securities received as collateral against the securities lent. CRE56.5 is open to misinterpretation, as it implies that the bank itself is subject to restrictions on the reuse of collateral, which would be inconsistent with the treatment of cash collateralized transactions set out in CRE56.4, where it is the bank’s counterparty that is subject to the restrictions.
To avoid misinterpretation, BCBS proposes to replace CRE56.5 with the following text: "Banks that borrow (or lend) securities are exempted from the haircut floors on collateral upgrade transactions if the recipient of the securities that the bank has delivered as collateral (or lent) is either (i) unable to re-use the securities (for example, because the securities have been provided under a pledge arrangement), or (ii) provides representations to the bank that they do not and will not re-use the securities." In addition, BCBS proposes to replace the formula for calculation of the “portfolio” haircut floor for a netting set of securities financing transactions in CRE56.10. The footnote to CRE56.10 explains that the formula is intended to be a weighted average floor of the portfolio. More precisely, the formula is intended to be the exposure-weighted average haircut amount for net-lent securities divided by the exposure-weighted average haircut amount for net-received securities. However, the formula that was developed was oversimplified before publication. Therefore, BCBS is proposing to replace it.
Comment Due Date: March 31, 2021
Keywords: International, Banking, Basel, Technical Amendment, SFT, Securities Financing Transactions, Haircut, Netting, Collateral Upgrade Transaction, BCBS
Previous ArticleOSFI Outlines Capital Treatment for COVID-19 Loan Guarantee Program
FDIC is seeking comments on a rule to amend the interagency guidelines for real estate lending policies—also known as the Real Estate Lending Standards.
ISDA is consulting on the implementation of fallbacks for the sterling LIBOR ICE Swap Rate and for the USD LIBOR ICE Swap Rate.
BIS and BoE launched the BIS Innovation Hub Center in London, which is the fourth new Innovation Hub Centre to be opened in the past two years.
ESRB published recommendations on the reciprocation of macro-prudential measures in Belgium, France, Luxembourg, Norway, and Sweden.
SEC announced that the Office of Information and Regulatory Affairs released the Spring 2021 Unified Agenda of Regulatory and Deregulatory Actions.
EC published the Delegated Regulation 2021/931, which supplements the Capital Requirements Regulation (CRR or Regulation 575/2013) with regard to the regulatory technical standards specifying the method for identifying derivative transactions with one or more than one material risk driver.
BCBS is consulting on preliminary proposals for the prudential treatment of cryptoasset exposures of banks.
EBA issued a revised list of validation rules under the implementing technical standards on supervisory reporting.
BIS Innovation Hub, BDF, and SNB announced that, together with a private-sector consortium led by Accenture, they will conduct an experiment using wholesale central bank digital currency (wCBDC) for cross-border settlement.
ESAs published two amended implementing technical standards on the mapping of credit assessments of External Credit Assessment Institutions (ECAIs).