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
The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.
The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.
The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.
The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups
The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.
The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.
The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.
The Financial Accounting Standards Board (FASB) is seeking comments, until November 03, 2022, on the proposed technical and other conforming improvements for the 2023 GAAP Financial Reporting Taxonomy.
The European Central Bank (ECB) published the results of its thematic review, which shows that banks are still far from adequately managing climate and environmental risks.
Among its recent publications, the European Banking Authority (EBA) published the final standards and guidelines on interest rate risk arising from non-trading book activities (IRRBB)