[Detailed client memorandum to come.] We have prepared a set of tables that provide a high-level comparison of the available stable funding (ASF) factors and the required stable funding (RSF) factors used to calculate the Basel III net stable funding ratio (NSFR). The tables compare the Basel Committee’s January 2014 proposed revisions to the NSFR with the original December 2010 version of the NSFR. We will be publishing a client memorandum that analyzes the key proposed changes to the Basel III NSFR.… Read More
[Detailed client memorandum to come.] Today, the Basel Committee proposed revisions to the Basel III net stable funding ratio (NSFR). The original version of the NSFR was published in December 2010.
Background: Part of the Basel III liquidity coverage ratio, the NSFR requires banking organizations to maintain a stable funding profile in relation to the composition of their assets and off-balance sheet activities. The NSFR is defined as the amount of available stable funding (ASF) relative to the amount of required stable funding (RSF). … Read More
Federal Reserve Governor Tarullo Discusses Short-term Wholesale Funding and Potential Regulatory Remedies
Today, Federal Reserve Governor Daniel K. Tarullo delivered a speech discussing the potential financial stability concerns raised by short-term wholesale funding in the form of securities financing transactions (SFTs), which include repo and reverse repo, securities lending and borrowing, and securities margin lending transactions. Governor Tarullo also discussed possible regulatory measures to address these concerns, including (1) regulatory capital surcharge calculated by reference to a firm’s reliance on SFTs and other forms of short-term wholesale funding (2) modifications to capital and liquidity standards such as standardized banking book risk weights, trading book capital charges and Basel III net stable funding ratio (NSFR) and (3) universal margin requirements for SFTs.… Read More
Federal Reserve Governor Stein Discusses Fire-sales Problem Associated with Securities Financing Transactions and Potential Policy Remedies
Today, Federal Reserve Governor Jeremy C. Stein delivered a speech discussing the fire-sales problem associated with securities financing transactions (SFTs) and potential policy remedies, including a liquidity-linked capital surcharge, modifications to liquidity standards such as the Basel III net stable funding ratio (NSFR) and universal margin requirements for SFTs.
Existing Regulatory Tools: In his speech, Governor Stein argued that “the mainstays of our existing regulatory toolkit–risk-based capital, liquidity, and leverage requirements–have a variety of other virtues, but none seem well-suited to lean in a comprehensive way against the specific fire-sale externalities created by SFTs.”
New Regulatory Tools: Governor Stein went on to consider other tools that might be better suited to dealing with SFT-related fire-sales externalities. … Read More
Financial Stability Board’s Proposed Framework for Minimum Haircuts on Securities Financing Transactions
Today, the Financial Stability Board (FSB) published a set of policy recommendations and reports designed to strengthen the oversight and regulation of the shadow banking system. One of the FSB’s reports, entitled Policy Framework for Addressing Shadow Banking Risks in Securities Lending and Repos, sets out recommendations for addressing financial stability risks in this area, including enhanced transparency, regulation of securities financing and improvements to market structure.
FSB’s Proposed Framework for Minimum Haircuts on Securities Financing Transactions: Among other things, the FSB report includes a proposed regulatory framework for haircuts on non-centrally cleared securities financing transactions (SFTs). … Read More
In his statement at today’s open meeting to approve the U.S. Basel III final rule, Federal Reserve Governor Daniel K. Tarullo previewed “four rulemakings that will enhance capital requirements for the eight U.S. banking organizations already identified as of global systemic importance.” Governor Tarullo described these four rulemakings for the 8 U.S. G-SIBs as being in various stages of development.
1. Higher Basel III Leverage Ratio: According to Governor Tarullo, the U.S. banking regulators are very close to issuing a proposal to establish a leverage ratio for the eight U.S.… Read More