BoE published a discussion paper that seeks initial feedback on the BoE approach to the risk management of collateral that references the London Interbank Offered Rate (LIBOR); this approach is positioned at BoE for use in its market operations, as sterling and other markets transition away from LIBOR toward the alternative risk‐free reference rates. Comments are requested by September 27, 2019.
The paper provides a brief background to both the LIBOR transition process and the collateral framework of BoE and describes their potential implications for the BoE balance sheet from LIBOR transition. In the UK, BoE and FCA are working with market participants through the Working Group on Sterling Risk‐Free Reference Rates to catalyze a transition to using the Sterling Overnight Index Average (SONIA) as the primary interest rate benchmark in sterling markets. Against this backdrop, BoE has initiated a review of its own exposures, or potential exposures, to LIBOR. One key area of investigation has been the collateral that banks and other financial firms are asked to provide when borrowing from BoE under the Sterling Monetary Framework.
The paper also outlines a number of possible risk management approaches that are under consideration by BoE to ensure that it remains well-placed to provide liquidity insurance in support of financial stability. It further poses some questions for discussion. Views on these questions are sought, both from firms that are signed up (or expect to sign up) to the Sterling Monetary Framework and from any other interested parties. Responses will be used to help frame the future risk management approach of BoE with regard to the collateral referencing LIBOR. The assessment of collateral eligibility criteria and haircuts needed to protect public money are not normally informed by input from market participants. However, in this case, the unusually wide ramifications of LIBOR transition and the need to plan well ahead means that BoE sees merit in seeking views at a relatively early stage in the process.
Comment Due Date: September 27, 2019
Keywords: Europe, UK, Banking, Securities, LIBOR, Collateral Referencing, Risk Management Approach, SONIA, Risk-Free Rates, Interest Rate Benchmarks, BoE
Previous ArticleOCC Releases Bank Supervision Operating Plan for Fiscal Year 2020
BIS published the September issue of the Quarterly Review, which contains special features that analyze the rapid rise in equity funding for financial technology firms, the effectiveness of policy measures in response to pandemic, and the evolution of international banking.
The Basel Committee for Banking Supervision (BCBS) met in September 2021 and reviewed climate-related financial risks, discussed impact of digitalization, and welcomed efforts by the International Financial Reporting Standards (IFRS) Foundation to develop a common set of sustainability reporting standards
The Office of the Comptroller of the Currency (OCC) issued a Cease and Desist Order against MUFG Union Bank for deficiencies in technology and operational risk governance.
The European Commission (EC) published the Delegated Regulation 2021/1527 with regard to the regulatory technical standards for the contractual recognition of write down and conversion powers.
In a response to the questions posed by a member of the European Parliament, the President Christine Lagarde highlighted the commitment of the European Central Bank (ECB) to an ambitious climate-related action plan along with a roadmap, which was published in July 2021.
The Single Resolution Board (SRB) published a Communication on the application of regulatory technical standard provisions on prior permission for reducing eligible liabilities instruments as of January 01, 2022.
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to provide guidance to authorized deposit-taking institutions on the interpretation of APS 120, the prudential standard on securitization.
The French Prudential Control and Resolution Authority (ACPR) published the corrective version of the RUBA taxonomy Version 1.0.1, which will come into force from the decree of January 31, 2022.
The European Commission (EC) announced that Nordea Bank has signed a guarantee agreement with the European Investment Bank (EIB) Group to support the sustainable transformation of businesses in the Nordics.
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to clarify the regulatory capital treatment of investments in the overseas deposit-taking and insurance subsidiaries.