Net Stable Funding Ratio (NSFR) Update. Presented to: IBFed Prudential Supervision Working Group October 10, 2014

Transcription

1 Net Stable Funding Ratio (NSFR) Update Presented to: IBFed Prudential Supervision Working Group October 10, 2014

2 NSFR Background The NSFR was first introduced in 2009 in the Basel Committee s proposed Basel III rules. Definition: ASF/RSF > or equal to 100% In January 2014, a draft NSFR consultative document amended the proposed rules, including improvements: Clarified that the NSFR is intended to be a structural liquidity ratio, not a one-year idiosyncratic stress test; Some recognition of operational deposits, interbank lending, and wholesale debt maturities under 1 year; Greater consistency with the LCR high quality liquid assets (HQLA) definitions; Relaxation of some available stable funding (ASF) and required stable funding (RSF) factors for retail and small-and-medium enterprise (SME) deposits. 2

3 Industry s April 2014 Feedback Concern that the ASF and RSF factors remain overly conservative (e.g. non-bank reverse repos under 6 months and operational & SME deposits) for the NSFR, which is a longer-term than the LCR and a non-stress scenario. More quantitative impact analyses will be required before the industry can assess the impact of the revised NSFR calibration (e.g. treatment of collateral and derivatives). Use of LCR parameters in the NSFR is inconsistent with a structural measure of liquidity not underpinned by a stress scenario (e.g. RSF factors similar to LCR haircuts). 3

4 NSFR Finalization Timeline The Basel Committee s Working Group on Liquidity (WGL) met in July 2014 in Stockholm to discuss industry concerns. The Basel Committee endorsed the final NSFR rules in September The final guideline expected to be released in October Goal: Substantially final NSFR by the Brisbane G20 Summit in November Observation period, followed by implemented in NSFR disclosure standard will be issued for consultation in January

5 Expected NSFR Changes While the following comments are speculation based on industry discussions, we expect some amendments to the NSFR, including: FI Loans: Further consideration of short-term loans to financial institutions, including SFT (securities financing transactions). Derivatives: Substantial improvements for derivatives (possibly addressing netting rules). Collateral: Considered comments on derivatives collateral posted and received and the definition of cash collateral, although the WGL did not necessarily agree. 5

6 Expected NSFR Changes continued Asymmetric treatment of repos: The WGL is aware of unintended consequences and expect changes to final rule. Conceptual inconsistencies between LCR and NSFR: Negotiating on treatment of HQLAs, operational and corporate deposits. Equities: It is challenging to reach a global standard given that some emerging market jurisdictions have been less stable. Note: On August 29, a joint-association letter (i.e. GFMA and IIF) was sent to the Basel Committee to request they reconsider its treatment of equities under the NSFR. The IIF sent a letter of support on September 9. 6

7 Expected NSFR Changes continued Securitization: European regulators supportive of better treatment, but other regulators find it challenging to discriminating between good and bad securitizations. Trade Finance: This may be addressed through national discretion. Other Assets and Liabilities: Some additional granularity would be desirable for other assets in order to apply RSF factors to the appropriate asset and liability types. Accounting - Issues discussed include the settlement of receivables/payable (i.e. trade-date vs. settlement-date). 7

8 Expected NSFR Changes continued Operational Accounts: May have to wait for jurisdictions to accumulate experiences before developing a common definition and how to distinguish between operational deposits and excess balances. Sound practices may follow. Industry comments were considered, but it is uncertain if any changes will be made for: Linked transactions Equities Securitized assets Trade finance HQLAs 8