FSB identifies risks of securities lending
28 October 2011 Basel
Image: Shutterstock
Cash collateral re-investment programmes will be scrutinised by the Financial Stability Board (FSB)among a package of recommendations aimed at addressing systemic risks posed by the shadow banking system.
The supra-national regulator will set up a "workstream" under its Task Force to focus on the regulation of these programmes as well as measures for repos and securities lending such as margins or haircuts.
Potential measures may include limits on the maturity of investments into which cash collateral is invested or on the types of instruments used. Additionally, limits on rehypothecation - the use of customers’ collateral to finance banks and securities dealers - may also be reviewed.
Securities financing - repo and securities lending - has been identified as a key contributor to AIG's downfall during the global financial crisis, when it was discovered that the insurer had built up ultimately illiquid positions at extreme risk levels.
Speaking on the broader overhaul of market based financing, Adair Turner, chairman of the FSB Standing Committee on Supervisory and Regulatory Cooperation, said, “With regulation on banks tightened, it is important to address systemic risks – such as maturity transformation and leverage – arising from the shadow banking sector and its interaction with the regular banking system. The detailed recommendations that will be produced by the five workstreams during 2012 are thus fundamental to the stability of the global financial system.”
The supra-national regulator will set up a "workstream" under its Task Force to focus on the regulation of these programmes as well as measures for repos and securities lending such as margins or haircuts.
Potential measures may include limits on the maturity of investments into which cash collateral is invested or on the types of instruments used. Additionally, limits on rehypothecation - the use of customers’ collateral to finance banks and securities dealers - may also be reviewed.
Securities financing - repo and securities lending - has been identified as a key contributor to AIG's downfall during the global financial crisis, when it was discovered that the insurer had built up ultimately illiquid positions at extreme risk levels.
Speaking on the broader overhaul of market based financing, Adair Turner, chairman of the FSB Standing Committee on Supervisory and Regulatory Cooperation, said, “With regulation on banks tightened, it is important to address systemic risks – such as maturity transformation and leverage – arising from the shadow banking sector and its interaction with the regular banking system. The detailed recommendations that will be produced by the five workstreams during 2012 are thus fundamental to the stability of the global financial system.”
NO FEE, NO RISK
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
