Decoding Basel III Endgames for Securities Finance and Collateral
Finadium
October 2023
Basel III Endgames around the world, also called Basel 3.1 and Basel IV, are leading towards uneven playing fields for regulated banks and new opportunities for non-bank financial intermediation. National regulators have adapted the most recent Basel Committee framework to suit their local needs, and in some cases have abandoned Basel norms altogether in favor of a more “gold-plated” approach to mitigating potential future risk. The end result is a confusing mix of overlapping rules and proposals in major financial jurisdictions.
To help market participants assess their own positioning, this report offers a plain-English reading of the European, US and UK Basel III Endgame rules that most impact securities finance, repo and collateral desks. The report offers highlights, citations and commentary on the main impacts of standardized, advanced and Expanded Risk-Based Approaches for calculating risk-weighted exposures, the calculation of the standardized approach to counterparty credit risk (SA-CCR) and the impact of new counterparty risk weights across jurisdictions.
The desk activities of securities finance, repo and collateral markets participants will be impacted by the final rules, along with their parent companies and their counterparties. Some changes may be positive while others may be punitive for selected counterparties to the point of an inability to pursue bilateral business. Although margin may be seen as expensive, central counterparties (CCPs) could become a more attractive option as a result. Every participant will need to calculate what the new rules mean for themselves in each jurisdiction.
Table of Contents
- Executive Summary
- National Rules and Proposals
- – Purpose of this Report
- Standardized Approaches, Advanced Approaches and New Approaches Altogether
- Counterparty Credit Risk Weightings
- SA-CCRs and Output Floors
- Minimum Haircut Requirements
- Liquidity Centers in Play and at Risk
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