BCBS on haircuts for securities financing transactions

Feb 17, 2021 Benn-Ibler Rechtsanwälte

The Basel Committee on Banking Supervision develops and maintains standards for the supervisory regulation of banks. The standards are implemented nationally by the members of the Committee. The Basel Committee is currently seeking clarification of future standards on the application of minimum haircut floors to collateral for securities financing transactions. Comments on the planned technical amendment to the standard can be submitted until 31 March 2021.

In January 2021, the Committee announced editorial clarifications in Chapter CRE56 of the Basel standards (minimum haircuts for collateral in securities financing transactions). Chapter CRE56 as such is to come into force on 1 January 2023.

Chapter CRE56.5 reads [emphasis added]: “Banks that lend securities are exempted from the haircut floors on collateral upgrade transactions if they are unable to re-use, or provide representations that they do not and will not re-use, the securities received as collateral against the securities lent.”

The Committee is concerned that the phrase "they" is misunderstood to mean that CRE56.5 requires that the bank (and not the recipient of the security) is restricted in the use of the securities.

The Committee proposes to replace CRE56.5 with the following paragraph: “Banks that borrow (or lend) securities are exempted from the haircut floors on collateral upgrade transactions if the recipient of the securities that the bank has delivered as collateral (or lent) is either (i) unable to re-use the securities (for example, because the securities have been provided under a pledge arrangement), or (ii) provides representations to the bank that they do not and will not re-use the securities.”

BCBS, Technical Amendment. Minimum haircut floors for securities financing transactions (January 2021)