Borrowers becoming increasingly picky
26 April 2017 London
Image: Shutterstock
Risk-weighted asset (RWA) ratings under Basel III are dictating the attractiveness of lenders’ assets, heard attendees of the Finadium Investors in Securities Lending Conference in London.
This has created a buyer’s market, with borrowers picking and choosing which lenders they trade with on the basis of the RWA ratings of their available stock.
According to panellists, Basel III's balance sheet management rules have significantly affected certain borrowers to favour lenders without RWA issues in order to avoid exposure limits.
The total loss-absorbing capacity (TLAC) standard for globally systemically important banks (G-SIBs), which are part of Basel III's balance sheet requirements, state that G-SIBs must meet a minimum TLAC requirement of at least 16 percent of RWA from 1 January 2019.
This will increase to 18 percent on 1 January 2022.
Minimum TLAC must also be at least 6 percent of the Basel III leverage ratio exposure from 1 January 2019 and at least 6.75 percent from 1 January 2022.
A panellist added that the jurisdiction a lender is based in and the netting opportunities available in a trade are just some of the factors borrowers consider when choosing a lender.
Peer-to-peer lending is one alternative route to market for beneficial owners that are struggling to lend out their assets, although a panel representing some of the largest agent lenders in the market claimed to be unperturbed by the their clients' increasing interest in disintermediation.
The entire panel agreed that looking to cut costs and maximise revenues through more streamlined trading structures was natural and something that has always existing within the market.
One panellist stated: "It will be a very small part of the market for the most sophisticated beneficial owners."
He continued: "If you're a link in the chain but you can't add clear value then you will be cut."
Another panellist commented that the rise of peer-to-peer lending is likely at help improve liquidity, which is a key concern for European market participants in the context on the European Central Bank's public sector asset purchase programme.
Peer-to-peer lending has accelerated thanks to the launch of a number of technology solutions built to facilitate direct asset transfers.
Platforms such as Elixium, which launched in 2016, now enable clients to utilise excess cash assets by directly trading with counterparties that might not otherwise be visible.
This has created a buyer’s market, with borrowers picking and choosing which lenders they trade with on the basis of the RWA ratings of their available stock.
According to panellists, Basel III's balance sheet management rules have significantly affected certain borrowers to favour lenders without RWA issues in order to avoid exposure limits.
The total loss-absorbing capacity (TLAC) standard for globally systemically important banks (G-SIBs), which are part of Basel III's balance sheet requirements, state that G-SIBs must meet a minimum TLAC requirement of at least 16 percent of RWA from 1 January 2019.
This will increase to 18 percent on 1 January 2022.
Minimum TLAC must also be at least 6 percent of the Basel III leverage ratio exposure from 1 January 2019 and at least 6.75 percent from 1 January 2022.
A panellist added that the jurisdiction a lender is based in and the netting opportunities available in a trade are just some of the factors borrowers consider when choosing a lender.
Peer-to-peer lending is one alternative route to market for beneficial owners that are struggling to lend out their assets, although a panel representing some of the largest agent lenders in the market claimed to be unperturbed by the their clients' increasing interest in disintermediation.
The entire panel agreed that looking to cut costs and maximise revenues through more streamlined trading structures was natural and something that has always existing within the market.
One panellist stated: "It will be a very small part of the market for the most sophisticated beneficial owners."
He continued: "If you're a link in the chain but you can't add clear value then you will be cut."
Another panellist commented that the rise of peer-to-peer lending is likely at help improve liquidity, which is a key concern for European market participants in the context on the European Central Bank's public sector asset purchase programme.
Peer-to-peer lending has accelerated thanks to the launch of a number of technology solutions built to facilitate direct asset transfers.
Platforms such as Elixium, which launched in 2016, now enable clients to utilise excess cash assets by directly trading with counterparties that might not otherwise be visible.
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