CASLA: Basel III sets pace for ‘space race’
04 June 2015 Toronto
Image: Shutterstock
Shifting collateral management trends and the effects of regulation were hot topics on the securities finance panel at the fifth annual Canadian Securities Lending Association (CASLA) conference in Toronto.
Mary-Jane Schuessler, desk head for North America securities finance at RBC Investor & Treasury services despite the challenges agent lenders face due to Basel III, increasing costs of capital and upcoming disclosure requirements, beneficial owner's engagement has increased, giving opportunities to present revenue enhancement vehicles as well.
Paul Larkin of CIBC World Markets suggested that while in the US participants’ preference seems to be shifting from cash to non-cash, in Canada, the trend is going in the opposite direction.
Pat Garvey of BNY Mellon agreed with this, adding that it is “probably the most systemic shift we’ve seen”.
Garvey said that flexibility in collateral is important, because banks have a responsibility to get beneficial owners the best returns possible. He also highlighted the need for transparency, stressing that it’s important for beneficial owners to understand where their collateral is located. He said: “It’s an education process.”
Another panellist, Andrew Thornhill of RBC Capital Markets, pointed out the many complications arising from collateral requirements, such as Basel III’s liquidity coverage ratio (LCR). He said banks must pay attention to the collateral coming in, and where it is going, but, alluding to flexibility, he added: “Different banks want their LCR set different ways.”
Nick Chan of BMO Capital Markets added to this, saying that, when it comes to collateral allocation, banks are “managing more holistically now”.
He suggested that some banks are focusing on client needs on a “case-by-case” basis, but called this practice “a work in progress”, and “a space race from a technology perspective”.
Chan concluded: “We have to be fluid in responding to regulatory pressures—it’s only going to get worse, not better.”
Mary-Jane Schuessler, desk head for North America securities finance at RBC Investor & Treasury services despite the challenges agent lenders face due to Basel III, increasing costs of capital and upcoming disclosure requirements, beneficial owner's engagement has increased, giving opportunities to present revenue enhancement vehicles as well.
Paul Larkin of CIBC World Markets suggested that while in the US participants’ preference seems to be shifting from cash to non-cash, in Canada, the trend is going in the opposite direction.
Pat Garvey of BNY Mellon agreed with this, adding that it is “probably the most systemic shift we’ve seen”.
Garvey said that flexibility in collateral is important, because banks have a responsibility to get beneficial owners the best returns possible. He also highlighted the need for transparency, stressing that it’s important for beneficial owners to understand where their collateral is located. He said: “It’s an education process.”
Another panellist, Andrew Thornhill of RBC Capital Markets, pointed out the many complications arising from collateral requirements, such as Basel III’s liquidity coverage ratio (LCR). He said banks must pay attention to the collateral coming in, and where it is going, but, alluding to flexibility, he added: “Different banks want their LCR set different ways.”
Nick Chan of BMO Capital Markets added to this, saying that, when it comes to collateral allocation, banks are “managing more holistically now”.
He suggested that some banks are focusing on client needs on a “case-by-case” basis, but called this practice “a work in progress”, and “a space race from a technology perspective”.
Chan concluded: “We have to be fluid in responding to regulatory pressures—it’s only going to get worse, not better.”
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