FSB addresses comments on lending
05 September 2013 London
Image: Shutterstock
In November 2012, the Financial Stability Board (FSB) published its consultative document, A Policy Framework for Addressing Shadow Banking Risks in Securities Lending and Repos which identified the financial stability issues (or shadow banking risks) in securities lending and repo markets, and set out 13 policy recommendations to address such risks.
These included: improvements in regulatory reporting and market transparency; regulation of securities financing, as well as policy recommendations related to structural aspects of the securities financing markets such as central clearing.
The FSB also invited views on the possible introduction of a framework of numerical haircut floors for certain securities financing transactions, which are intended to limit the extent to which financial entities, including non-banks, can use securities financing transactions to obtain leverage.
Consultation responses generally agreed with the analysis of FSB but cautioned against possible negative impacts and unintended consequences on repo and securities lending markets that function as the core funding market for financial institutions and promote price discovery for other related markets.
“The FSB has endeavoured to ensure that its recommendations minimise the risk of regulatory arbitrage as well as undue distortion of markets, and are consistent with other international regulatory initiatives,” said a statement.
In particular, the board launched an impact assessment in April to assess the potential impact and unintended consequences associated with its recommendations on minimum haircut methodology standards and numerical haircut floors.
As well as this, a new FSB data experts group on securities financing markets has been established to develop proposed standards and processes for data collection and aggregation at the global level to ensure consistent data collection by national/regional authorities by the end of 2014.
These included: improvements in regulatory reporting and market transparency; regulation of securities financing, as well as policy recommendations related to structural aspects of the securities financing markets such as central clearing.
The FSB also invited views on the possible introduction of a framework of numerical haircut floors for certain securities financing transactions, which are intended to limit the extent to which financial entities, including non-banks, can use securities financing transactions to obtain leverage.
Consultation responses generally agreed with the analysis of FSB but cautioned against possible negative impacts and unintended consequences on repo and securities lending markets that function as the core funding market for financial institutions and promote price discovery for other related markets.
“The FSB has endeavoured to ensure that its recommendations minimise the risk of regulatory arbitrage as well as undue distortion of markets, and are consistent with other international regulatory initiatives,” said a statement.
In particular, the board launched an impact assessment in April to assess the potential impact and unintended consequences associated with its recommendations on minimum haircut methodology standards and numerical haircut floors.
As well as this, a new FSB data experts group on securities financing markets has been established to develop proposed standards and processes for data collection and aggregation at the global level to ensure consistent data collection by national/regional authorities by the end of 2014.
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