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RMASL: winter is coming


14 October 2015 Miami
Reporter: Drew Nicol

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Image: Shutterstock
Those hoping that a regime change in the US after the presidential election will save their business from the oppression of Basel III are out of luck, according to the opening remarks at the 32nd Risk Management Association (RMA) 麻豆传媒 Lending Conference in Miami.

Gregory Lyons, partner at Debevoise & Plimpton, explained that the current terms of Basel III are here to stay, as they鈥檙e implemented through regulatory, not legislative action.

The first session analysed the current regulatory landscape and looked back at how far the securities lending industry has come since the RMA conference last year.

鈥淚t鈥檚 been a relatively quiet summer, too quiet some might say,鈥 said Lyons.

Q4 of 2015 and Q1 of 2016 will likely revive the tempo of industry change as all major regulatory bodies are expected to make major announcements concerning their vision for the next 18 months at the G20 summit, which begins on 15 November.

鈥淚t鈥檚 going to be a busy Christmas and New Year for all of us,鈥 added Lyons.

The US 麻豆传媒 and Exchange Commission, the Basel Committee, the Financial Stability Board and the International Swaps and Derivatives Association (ISDA) are all expected to use the occasion to deliver further details on issues such as the so-called 鈥楤asel IV鈥 initiative, the ISDA stay protocol and total-loss absorption capacity.

鈥楤asel IV鈥 is the unofficial title given to plans to tackle the variables that currently exist in the way different states in Europe and the US interpret some aspects of regulation. The aim is to close any potential loopholes that allow international companies to exploit the rules to get better treatment by the regulator by shifting assets to different regions.

After outlining the numerous regulatory hurdles being tackled presently or on the horizon, the point was raised that with all the new regulatory proposals being put forward, very little time had been given to reviewing how all these new restrictions would work in tandem, and their combined impact on the market.

With the development phase of most of these new rules now complete, there鈥檚 a need to do just that as it recently emerged that European repo activity had dropped significantly in 2015 and is stagnating under the weight of the new regulations.

The Bank of England, as one panellist pointed out, has since commissioned a study into whether the financial markets, although technically more stable, are actually being crippled by the new framework and whether a compromise needs to be reached.

Although this will be positive news for many, another panellist quickly reminded the audience that 鈥淯S regulators disagree entirely and are showing no sign of slowing down on their efforts鈥.

All conversations of regulation ultimately led back to Basel III as the panel gave an update on the progress of the implementation of the liquidity coverage ratio and the net stable funding ratio (NSFR). The panel aligned itself with the majority of the industry鈥檚 belief when it was prediction that the NSFR, although not due to go live until 2018, would become a regular feature of the industry much sooner as the market would force banks to adopt the ratio as best practice long before the due date.

Another conference speaker turned to the burden of multiple variables in risk weighted assets (RWA) calculations across different markets.

This trend can be clearly seen, explained the speaker, by the way European and Asian markets, which have much wider variables between independent countries than between states in the US, are much further along this path, although admittedly, there are other constraints on the US that are also slowing this shift.

The conversation then shifted to the ongoing and emotive subject of central counterparties (CCP) and their place in the world of securities lending.

With no CCPs on the panels, the debate was primarily from the agent lender and broker perspectives and most agreed that there was a place for CCPs as a 鈥榯ool in the toolbox鈥, but too many questions marks remained to make concrete predictions for the future.

Agent lenders will become clearer about their inability, or unwillingness, to indemnify all trades. Whether this will increase the attractiveness of CCPs as an alternative risk mitigation tool remains to be seen, heard conference attendees.
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