Featured Product

    BCBS Amends Requirements on Minimum Haircut Floors for SFTs

    July 01, 2021

    BCBS published two technical amendments to the standard on minimum haircut floors for securities financing transactions (SFTs). The technical amendments address an interpretative issue related to collateral upgrade transactions and correct a misstatement of the formula used to calculate haircut floors for netting sets of securities financing transactions. The amendments were published for consultation in January 2021 and have been finalized as originally proposed.

    The technical amendments are with respect to the Basel framework's Chapter CRE56, which sets out the calculation methodology for 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 certain specified minimum standards. For collateral upgrade transactions, 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 was open to misinterpretation as it implied that the bank itself is subject to the restrictions on reuse of the 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 replaced 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 replaced 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 was intended to be a weighted average floor of the portfolio. More precisely, the formula was 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 replacing the formula. The worked example contained in CRE56.13 has been updated to reflect the correction of the formula in CRE56.10.

     

    Related Links

    Keywords: International, Banking, Basel, Technical Amendment, SFT, Securities Financing Transactions, Haircut, Netting, Collateral Upgrade Transaction, BCBS

    Featured Experts
    Related Articles
    News

    US Agencies Issue Regulatory Updates, FDIC Launches Tech Sprint

    The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.

    January 13, 2022 WebPage Regulatory News
    News

    EBA Issues Guide on Bank Resolvability, Consults on Transferability

    The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).

    January 13, 2022 WebPage Regulatory News
    News

    HKMA Extends Repayment for Trade Facilities, Consults on Crypto-Assets

    The Hong Kong Monetary Authority (HKMA) published a circular, along with the reporting form and instructions, for self-assessment, by authorized institutions, of compliance with the Code of Banking Practice 2021.

    January 12, 2022 WebPage Regulatory News
    News

    FCA Registers Securitization Repositories; PRA Issues 2022 Priorities

    The Financial Conduct Authority (FCA) decided to register European DataWarehouse Ltd and SecRep Limited as securitization repositories under the UK Securitization Regulation, with effect from January 17, 2022.

    January 12, 2022 WebPage Regulatory News
    News

    EC Regulation Sets Out Methods for Measuring K-Factors Under IFR

    The European Commission (EC) published the Delegated Regulation 2022/25, which supplements the Investment Firms Regulation (IFR or Regulation 2019/2033) with respect to the regulatory technical standards specifying the methods for measuring the K-factors referred to in Article 15 of the IFR.

    January 11, 2022 WebPage Regulatory News
    News

    BIS Studies How Platform Models Impact Financial Stability & Inclusion

    The Bank of International Settlements (BIS) published a paper that assesses the ways in which platform-based business models can affect financial inclusion, competition, financial stability and consumer protection.

    January 10, 2022 WebPage Regulatory News
    News

    ESAs Publish List of Financial Conglomerates for 2021

    The European Supervisory Authorities (ESAs) published the list of identified financial conglomerates for 2021.

    January 07, 2022 WebPage Regulatory News
    News

    APRA Licenses Two More Banks, Reduces Committed Liquidity Facility

    The Australian Prudential Regulation Authority (APRA) updated the list of authorized deposit-taking institutions, granting license to Barclays Bank PLC and Crédit Agricole Corporate and Investment Bank to operate as foreign authorized deposit-taking institutions under the Banking Act 1959.

    January 07, 2022 WebPage Regulatory News
    News

    EU Issues SII Corrigendum; EIOPA Assesses SII Reporting Exemptions

    EU published, in the Official Journal of the European Union, a corrigendum to the Delegated Regulation 2015/35, which supplements Solvency II Directive (2009/138/EC).

    January 06, 2022 WebPage Regulatory News
    News

    EBA Opines on Impact of De-Risking and Associated AML/CFT Challenges

    The European Banking Authority (EBA) published an Opinion on the scale and impact of de-risking in European Union and the steps that competent authorities should take to tackle unwarranted de-risking.

    January 05, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 7860