ISLA Response to the European Commission’s Targeted Consultation on improving the EU’s Macroprudential Framework for the Banking Sector
The Association strongly believes that the current EU macroprudential toolkit in place, implemented through the Capital Requirements Regulation and Directive, are sufficiently adequate for mitigating banks’ systemic risks, including systemic risk associated to banks’ exposures to the non-banking sector, through the use of securities financing transactions (SFTs).
ISLA does not support the view of the European Systemic Risk Board (ESRB) and the European Banking Authority (EBA) that a broadening of the macroprudential toolkit is warranted for all types of SFTs. ISLA does support the efforts of the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision (BCBS) to transform historic ‘shadow banking’ into resilient market-based financing, including through the introduction of a framework for minimum haircuts. ISLA would advise however, that this framework needs to be reviewed to provide more clarity on which SFT types it may impact, as it is the view of ISLA that securities lending and borrowing, as one type of SFT that is not primarily used for financing, but rather for sourcing securities, is not an investment tool that creates a build-up of leverage, which the Commission states as a reason behind a proposal for the expansion of a macroprudential framework to SFTs.
The full response is available at https://www.islaemea.org/wp-content/uploads/2019/03/ISLA_Response_to_EC_Consultation_Macroprudential-Framework_March2022.pdf