FSB Pushes Repo Regs
The Financial Stability Board issued a press release Tuesday announcing a new "Regulatory Framework for Haircuts on Non-centrally Cleared Securities Financing Transactions." It says, "The Financial Stability Board (FSB) is publishing today a "Regulatory Framework for Haircuts on Non-centrally Cleared Securities Financing Transaction." This Framework is a key part of the FSB's policy recommendations to address shadow banking risks in relation to securities financing transactions, and takes into account public responses received on the consultative proposals issued on 29 August 2013 as well as the results of a two-stage quantitative impact study (QIS). In revising the Framework, the FSB has decided to raise the levels of numerical haircut floors based on the QIS results, existing market and central bank haircuts, and data on historical price volatility of different asset classes. It has also decided to propose applying the numerical haircut floors to non-bank-to-non-bank transactions so as to ensure shadow banking activities are fully covered, to reduce the risk of regulatory arbitrage, and to maintain a level-playing field.... The FSB will complete its work on the application of numerical haircut floors to non-bank-to-non-bank transactions and set out details of how it will monitor implementation by the second quarter of 2015. FSB member authorities will implement the Framework, including the numerical haircut floors, by the end of 2017." It continues, "Mark Carney, Chairman of the FSB, stated that "The regulatory framework for haircuts on securities financing transactions issued by the FSB today addresses important sources of leverage and the level of risk-taking in the core funding markets. It has been carefully developed, finalised after rounds of public consultation and impact studies, and marks a big step forward in the FSB's overall work programme to transform shadow banking into resilient market-based financing conducted on a sound basis." Daniel Tarullo, Chairman of the FSB Standing Committee on Supervisory and Regulatory Cooperation stated that "Securities financing transactions such as repos are important funding tools for a wide range of market participants, including non-bank financial firms. The implementation of the numerical haircut floors on securities financing transactions will reduce the build-up of excessive leverage and liquidity risk by non-banks during peaks in the credit and economic cycle. It will be important for the FSB to monitor the impact of the framework following the implementation to help ensure that it achieves these objectives." Bloomberg writes in "Repo Traders Face FSB Collateral Rule in Shadow Bank Push," "Traders are facing new global rules on how they determine the value of collateral in repo transactions as regulators seek to prevent panic writedowns that are seen fueling future financial crises. The Financial Stability Board, a global group that brings together central bankers and government officials from the Group of 20 nations, today published a set of guidelines on discounts applied to collateral handed over as part of repurchase-agreement trades and other securities-financing transactions that aren't processed through clearing houses. It also set minimum standards for some types of trades." Also, the FT writes, "Terms Laid Down for Taming Shadow Bank Risk."
