On 29 August, the FSB published the report Policy Framework for Addressing Shadow Banking Risks in Securities Lending and Repos (hereafter August Report) that set out policy recommendations for addressing financial stability risks in relation to securities lending and repos.1It also included proposals on minimum standards for methodologies to calculate haircuts on non-centrally cleared securities financing transactions and a framework of numerical haircut floors that will apply to non-centrally cleared securities financing transactions in which entities not subject to regulation of capital and liquidity/maturity transformation receive financing from regulated financial intermediaries against collateral other than government securities. The FSB invited comments from the public on these proposals by 28 November. As part of the development of these proposals, the FSB had launched a two-stage quantitative impact assessment (QIS) in April 2013.
The first stage (QIS1) consisted of a data request to a group of 17 large financial intermediaries (banks and broker-dealers) from 12 jurisdictions on historical haircut distributions at three specific points in time (pre-crisis, post-crisis and current) in order to help calibrate detailed minimum haircut proposals. This first stage also included qualitative questions asking participating firms to provide a general description of the factors they take into account and the approach they follow when setting haircuts on securities financing transactions.
The second stage of this exercise (QIS2) is now being launched and comprises a more comprehensive quantitative assessment of the impact on a broader set of firms of the FSB’s detailed haircuts proposals, both the proposed minimum standards for methodologies used by firms in calculating their own haircuts and the numerical haircut floors to be applied to certain securities financing transactions. The FSB has published instructions and reporting templates to assess the impact of its proposals and is inviting interested market participants to participate in the exercise.