Featured Product

    BoE Notice on Eligibility of LIBOR-Linked Collateral for Use in SMF

    May 07, 2020

    BoE issued a Market Notice on its risk management approach to collateral referencing London Inter-bank Offered Rate (LIBOR) for use in Sterling Monetary Framework or SMF. All LIBOR-linked collateral, regardless of the issuance or origination date, will be ineligible for use in Sterling Monetary Framework from December 31, 2021. Also, all LIBOR-linked loans issued on or after April 01, 2021 will be ineligible for use in the Sterling Monetary Framework.

    According to the notice, all collateral securities issued on or after April 01, 2021 and maturing after December 31, 2021 will be ineligible for use in the Sterling Monetary Framework where:

    • Coupon pays a rate of interest calculated by reference to LIBOR
    • Embedded swap payments are calculated by reference to LIBOR
    • One or more loans in the portfolio are a LIBOR-linked loan originated after April 01, 2021, in case where the collateral securities are backed by loans

    However, LIBOR-linked collateral may otherwise still be requested for eligibility until December 31, 2021. BoE will monitor market developments in relation to fallback language and will keep under review the potential to distinguish between LIBOR-linked collateral with robust fallback language and that without, as market practice develops. The current intention of BoE is to update the list of eligible securities that are impacted by this policy on a monthly basis.

    Pursuant to the notice, a haircut add-on will also be applied to all LIBOR-linked collateral. It will be 10 percentage points from April 01, 2021, 40 percentage points from September 01, 2021 and 100 percentage points from December 31, 2021. In respect of loan portfolios containing both LIBOR-linked loans (maturing after December 31, 2021) and other loans, the Sterling Monetary Framework participants may choose to either remove the LIBOR-linked loans from the loan portfolios, or alternatively split these loan portfolios subject to them meeting the standard collateral eligibility requirements of BoE. Throughout this notice, LIBOR refers to GBP LIBOR, USD LIBOR, EUR LIBOR, JPY LIBOR and CHF LIBOR. 


    Related Link: Market Notice

    Keywords: Europe, UK, Banking, Securities, LIBOR, Credit Risk, Fallback Language, Risk-free Rates, Sterling Monetary Framework, Haircut, Benchmark Reforms, BoE

    Related Articles
    News

    HKMA Enhances Loan Guarantee Scheme to Alleviate Pressure on SMEs

    HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.

    February 24, 2021 WebPage Regulatory News
    News

    BoE Sets Out Plan to Transform Data Collection from Financial Sector

    BoE has set out a three-phased plan to transform data collection from the UK financial sector over the next decade.

    February 23, 2021 WebPage Regulatory News
    News

    BIS Issues Updates on Technology Initiatives on Cross-Border Payments

    BIS recently made a couple of announcements with respect to the planned and ongoing work in the area of financial technology.

    February 23, 2021 WebPage Regulatory News
    News

    ESRB Updates List of Macro-Prudential Measures in February 2021

    ESRB updated the list of national macro-prudential measures applied by each member state in the European Economic Area.

    February 22, 2021 WebPage Regulatory News
    News

    BoE Survey Shows Positive COVID Impact on Outsourced Banking Services

    BoE has set out results of a survey on the impact of COVID-19 events on the use of machine learning and data science.

    February 22, 2021 WebPage Regulatory News
    News

    ECB Issues Opinion on Proposal to Regulate Crypto-Asset Markets in EU

    In response to a request from the European Council and Parliament, ECB published an opinion on the proposed regulation on markets in crypto-assets.

    February 22, 2021 WebPage Regulatory News
    News

    APRA Announces Aggregate Committed Liquidity Facility for Banks

    APRA announced the updated aggregate amounts for the 2021 Committed Liquidity Facility (CLF) established between the Reserve Bank of Australia (RBA) and certain locally incorporated authorized deposit-taking institutions that are subject to the Liquidity Coverage Ratio (LCR).

    February 19, 2021 WebPage Regulatory News
    News

    ECB and UK Authorities Agree on Post-Brexit Supervisory Cooperation

    ECB published supervisory Memorandums of Understanding (MoUs) with UK as well as other European and non-European authorities.

    February 19, 2021 WebPage Regulatory News
    News

    EIOPA Outlines Strategic Supervisory Priorities for Insurance Sector

    EIOPA identified business model sustainability and adequate product design as the two EU-wide strategic supervisory priorities.

    February 19, 2021 WebPage Regulatory News
    News

    US Agencies to Revise FFIEC 031, FFIEC 041, and FFIEC 051 Reports

    After considering comments received on the November 2020 proposal, US Agencies (FDIC, FED and OCC) are proceeding with the proposed revisions to the reporting forms and instructions for Call Reports FFIEC 031, FFIEC 041, and FFIEC 051.

    February 19, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6618