BCBS address NSFR questions
18 July 2016 Basel
Image: Shutterstock
Collateral must be considered encumbered for the term of the transaction, regardless of maturity date, when calculating the net stable funding ratio (NSFR), according to Basel Committee on Banking Supervision (BCBS).
In its latest response note to industry queries about Basel III’s NSFR, the BCBS explained in a newly updated FAQ document that any collateral pledged under a transaction maturing beyond one year should be subject to a required stable fund factor of 100 percent.
In a separate question, the BCBS clarified that securities finance transactions can only be reported on a net basis in the NSFR when the transactions have a single counterparty and all the netting conditions set out in Paragraph 33(i) of the Basel III leverage ratio framework and disclosure requirements document are met.
In all other instances, the amounts receivable and payable through securities financing transactions should be reported on a gross basis.
When dealing with partially secured securities transactions in the context of calculating the NSFR, the BCBS said that the secured and unsecured portions of a loan should each be treated according to its characteristics and assigned the corresponding required stable fund factor.
The BCBS added that if it is not possible to draw the distinction between the secured and unsecured part of the loan, the higher required stable fund factor should apply to the whole loan.
Finally, the BCBS addressed industry concerns regarding open reverse repo transactions, explaining that, when determining the maturity of an instrument, investors should be assumed to exercise any option to extend maturity.
For assets with options exercisable at the bank’s discretion, supervisors should take into account reputational factors that may limit a bank’s ability not to exercise the option.
In its latest response note to industry queries about Basel III’s NSFR, the BCBS explained in a newly updated FAQ document that any collateral pledged under a transaction maturing beyond one year should be subject to a required stable fund factor of 100 percent.
In a separate question, the BCBS clarified that securities finance transactions can only be reported on a net basis in the NSFR when the transactions have a single counterparty and all the netting conditions set out in Paragraph 33(i) of the Basel III leverage ratio framework and disclosure requirements document are met.
In all other instances, the amounts receivable and payable through securities financing transactions should be reported on a gross basis.
When dealing with partially secured securities transactions in the context of calculating the NSFR, the BCBS said that the secured and unsecured portions of a loan should each be treated according to its characteristics and assigned the corresponding required stable fund factor.
The BCBS added that if it is not possible to draw the distinction between the secured and unsecured part of the loan, the higher required stable fund factor should apply to the whole loan.
Finally, the BCBS addressed industry concerns regarding open reverse repo transactions, explaining that, when determining the maturity of an instrument, investors should be assumed to exercise any option to extend maturity.
For assets with options exercisable at the bank’s discretion, supervisors should take into account reputational factors that may limit a bank’s ability not to exercise the option.
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