BoE published a market notice that forms part of the Documentation for the operations of BoE under the Sterling Monetary Framework (SMF). Pursuant to this market notice, a haircut add-on will be applied to all LIBOR Linked Collateral. The haircut add-on will be 10 percentage points from October 01, 2020, 40 percentage points from June 01, 2021 and 100 percentage points from December 31, 2021. To avoid doubt, haircuts will be capped at 100%. The market notice mentions that BoE will monitor market developments in relation to fallback language and will keep under review the potential to distinguish between LIBOR Linked Collateral with and without robust fallback language, as market practice develops.
In respect of Loan Portfolios containing both LIBOR Linked Loans and other loans, SMF 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. The market notice makes the following changes to the eligibility of LIBOR Linked Collateral:
- From October 01, 2020, all securities issued on or after that date and maturing after December 31, 2021, where the coupon pays a rate of interest calculated by reference to LIBOR, will be ineligible for use in the SMF
- From October 01, 2020, all securities issued on or after that date and maturing after December 31, 2021, where embedded swap payments are calculated by reference to LIBOR, will be ineligible for use in the SMF
- From October 01, 2020, all securities issued on or after that date and maturing after December 31, 2021, backed by loans where one or more loans in the portfolio is a LIBOR Linked Loan that was originated after October 01, 2020, will be ineligible for use in the SMF
- From October 01, 2020, all LIBOR Linked Loans issued on or after that date will be ineligible for use in the SMF
- From December 31, 2021, all LIBOR Linked Collateral, regardless of the issuance or origination date, will be ineligible for use in the SMF.
Except as described above, LIBOR Linked Collateral may otherwise still be requested for eligibility until December 31, 2021. BoE intends to update, on a monthly basis, the list of eligible securities that are impacted by this policy.
Related Link: Market Notice
Keywords: Europe, UK, Banking, Securities, Haircut, LIBOR, Collateral, Fallback Language, Sterling Monetary Framework, BoE
Previous ArticleCFTC Proposes Rules on Derivative Position Limits and Swap Execution
In a letter addressed to the industry, the Australian Prudential Regulation Authority (APRA) set out an updated schedule of policy priorities for the banking, insurance, and superannuation industries.
The European Commission (EC) adopted a comprehensive review package of Solvency II rules in the European Union.
The Office of the Comptroller of the Currency (OCC) issued Versions 1.0 of the "Earnings" and "Regulatory Reporting" booklets of the Comptroller's Handbook.
The European Central Bank (ECB) published results of its economy-wide climate stress test, which aimed to assess the resilience of non-financial corporates and euro area banks to climate risks.
The European Banking Authority (EBA) published a report on the use of digital platforms in the banking and payments sector in European Union.
The Hong Kong Monetary Authority (HKMA) published updates on the policy measures that were announced in context of the ongoing pandemic.
The International Swaps and Derivatives Association (ISDA), along with several other associations, submitted a joint response to the Basel Committee on Banking Supervision (BCBS) consultation on preliminary proposals for the prudential treatment of cryptoasset exposures.
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.