PASLA/RMA securities lending conference: (More) regulatory woes
08 March 2013 Hong Kong
Image: Shutterstock
Regulations came under the microscope again at the PASLA/RMA securities lending conference, but this time it was the turn of Basel III, liquidity coverage ratios and the financial transaction tax.
The final day of the Pan Asia Securities Lending Association (PASLA)/Risk Management Association (RMA) Conference on Asian Securities Lending kept a tight focus on upcoming changes in law to the industry, as attendees were presented with a slightly daunting bumper pack of regulations to keep up with a fast-paced panel discussion.
Patrick Avitabile of Citi, Paget Dare Bryan of Clifford Chance, Gregory Lyons of Debevoise & Plimpton, Michael McAuley of BNY Mellon, and Florence Roegiers of BNP Paribas launched themselves into the topics of Basel III, liquidity coverage ratios (LCRs) and the financial transaction tax, among others.
Of the US Dodd-Frank Act, it will take a while to have an effect, with it being noted that after almost three years it is still in process, and likely to take five to seven more years. 鈥淩egulators are creating a conflict between supply and demand, and they have not proved very sympathetic,鈥� said one panel participant. 鈥淭hey鈥檝e given us two choices: either get rid of indemnification; or raise more capital.鈥�
Current G-SIB Buckets鈥攖he Financial Stability Board鈥檚 list of global systematically important banks and the levels of capital charges that they will pay鈥攁re not yet finalised, but at the moment, Citi, Deutsche Bank, HSBC and J.P. Morgan are holding the dubious honour of being in the highest bucket of 2.5 to 4 percent. Interestingly, many Asian banks, despite their vast size, are not being caught up in this due to their positions as domestic banks. A panel participant noted that regulators are essentially telling banks to avoid making any acquisitions during this time.
After much pushback, Basel III regulations concerning LCRs were relaxed on 7 January, widening the range of 鈥渉igh quality liquid assets鈥� to include unencumbered corporate bonds, RMBs, and equities.
The US Federal Reserve Foreign Banking Organisations Supervision鈥檚 proposed prudential rules have a compliance date of 2015, and have caused a lot of consternation, noted panellists. The question of whether Dodd-Frank, which talked only of 鈥渓arge banking organisations鈥�, was supposed to apply to non-US banks was answered by regulators with a curt 鈥榶es鈥�, with foreign banks asking the Federal Reserve to give them some relief, pleading local capital rules as a good reason to not want any more.
A $50 billion institution with any activity in the US will be subject to these rules, with panellists predicting that firms such as UBS and Credit Suisse will be hit hard. One noted that UBS has already started laying staff off in New York, and there were murmurings that firms may reconsider their US activities.
As for the financial transaction tax, the rules have caused some confusion, with panellists admitting that they are still not sure about what the guidelines would be around collateral. One participant made the argument that collateral is returned and helps to lower risk鈥攁nd shouldn鈥檛 therefore be taxed鈥攂ut the participant glumly predicted that if governments see another revenue stream, they will take it.
A barrage of rules, regulations and guidance from every angle is forming a new paradigm, with all panellists agreeing that regulators are taking a new and severe stance. There are similarities between regulatory responses across regions and macro-economic factors are influencing the outcomes of different rules.
Though the US and Europe have some challenges to deal with, they can both be comforted by the fact that their markets are still relatively strong. And judging by the enthusiastic presence of participants from emerging markets such as Taiwan, Indonesia, and India, it looks as though鈥攊n the PASLA halls at least鈥攖he sector is confident that it will continue to weather the storm and continue to lend and borrow.
The final day of the Pan Asia Securities Lending Association (PASLA)/Risk Management Association (RMA) Conference on Asian Securities Lending kept a tight focus on upcoming changes in law to the industry, as attendees were presented with a slightly daunting bumper pack of regulations to keep up with a fast-paced panel discussion.
Patrick Avitabile of Citi, Paget Dare Bryan of Clifford Chance, Gregory Lyons of Debevoise & Plimpton, Michael McAuley of BNY Mellon, and Florence Roegiers of BNP Paribas launched themselves into the topics of Basel III, liquidity coverage ratios (LCRs) and the financial transaction tax, among others.
Of the US Dodd-Frank Act, it will take a while to have an effect, with it being noted that after almost three years it is still in process, and likely to take five to seven more years. 鈥淩egulators are creating a conflict between supply and demand, and they have not proved very sympathetic,鈥� said one panel participant. 鈥淭hey鈥檝e given us two choices: either get rid of indemnification; or raise more capital.鈥�
Current G-SIB Buckets鈥攖he Financial Stability Board鈥檚 list of global systematically important banks and the levels of capital charges that they will pay鈥攁re not yet finalised, but at the moment, Citi, Deutsche Bank, HSBC and J.P. Morgan are holding the dubious honour of being in the highest bucket of 2.5 to 4 percent. Interestingly, many Asian banks, despite their vast size, are not being caught up in this due to their positions as domestic banks. A panel participant noted that regulators are essentially telling banks to avoid making any acquisitions during this time.
After much pushback, Basel III regulations concerning LCRs were relaxed on 7 January, widening the range of 鈥渉igh quality liquid assets鈥� to include unencumbered corporate bonds, RMBs, and equities.
The US Federal Reserve Foreign Banking Organisations Supervision鈥檚 proposed prudential rules have a compliance date of 2015, and have caused a lot of consternation, noted panellists. The question of whether Dodd-Frank, which talked only of 鈥渓arge banking organisations鈥�, was supposed to apply to non-US banks was answered by regulators with a curt 鈥榶es鈥�, with foreign banks asking the Federal Reserve to give them some relief, pleading local capital rules as a good reason to not want any more.
A $50 billion institution with any activity in the US will be subject to these rules, with panellists predicting that firms such as UBS and Credit Suisse will be hit hard. One noted that UBS has already started laying staff off in New York, and there were murmurings that firms may reconsider their US activities.
As for the financial transaction tax, the rules have caused some confusion, with panellists admitting that they are still not sure about what the guidelines would be around collateral. One participant made the argument that collateral is returned and helps to lower risk鈥攁nd shouldn鈥檛 therefore be taxed鈥攂ut the participant glumly predicted that if governments see another revenue stream, they will take it.
A barrage of rules, regulations and guidance from every angle is forming a new paradigm, with all panellists agreeing that regulators are taking a new and severe stance. There are similarities between regulatory responses across regions and macro-economic factors are influencing the outcomes of different rules.
Though the US and Europe have some challenges to deal with, they can both be comforted by the fact that their markets are still relatively strong. And judging by the enthusiastic presence of participants from emerging markets such as Taiwan, Indonesia, and India, it looks as though鈥攊n the PASLA halls at least鈥攖he sector is confident that it will continue to weather the storm and continue to lend and borrow.
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