IIF Authors

Status: Will be live at 04/02/2021 11:53

IIF joint response to BCBS CP on Minimum Haircut Floors for SFTs 

The Institute of International Finance (IIF) and the International Swaps and Derivatives Association (ISDA) submitted a joint response to the Basel Committee on Banking Supervision (BCBS) Consultation Paper on the topic of technical amendments on Minimum haircut floors for securities financing transactions (SFTs) on March 31.

The industry fully supports the objectives to provide clarification and interpretative guidance contained within the technical amendment. Given the potential impact of the minimum haircuts for SFTs, the industry crafted a response letter focusing on recommendations on the technical amendment and additional areas we believe should be highlighted to avoid any unintended consequences, while still achieving the BCBS’s regulatory objectives.

The letter is structured into two key areas. Firstly, on the scope of application of the minimum haircut requirement and in particular highlighting the potential negative impact for securities borrowing transactions. Secondly on the quantitative determination of the minimum haircut requirement and the issues in relation to the penalty function embedded in the proposed framework that creates cliff effect outcomes while introducing instability in the calculation. 

The response letter also presents the benefit of further quantitative impact analysis on the impact of minimum haircut floors for SFTs in the Basel III revisions, as banks are still in the process of updating and developing their calculation capabilities.