G20 Regulators Move To Restrict Securities Financing Deals

Oct 14 2014 | 10:57am ET

The Financial Stability Board is slamming the brakes on a lucrative “shadow-banking” business for hedge funds.

The regulator, which coordinates rules among the Group of 20 industrialized nations, is increasing the amount of collateral required in securities financing transactions. The short-term financing deals involve stock lending and repurchase agreements.

Under the new rules, banks will be required to impose at least a 6% haircut on collateral received as part of securities financing deals. Originally, the FSB planned to impose only a 4% haircut, but some regulators, including the U.S. Federal Reserve, pushed for more. Indeed, the minimum haircut can be temporarily increased if regulators deem it necessary.

“The regulatory framework for haircuts on securities financing transactions issued by the FSB today addresses important sources of leverage and the level of risk-taking in the core funding markets,” FSB Chairman and Bank of England chief Mark Carney said.

The new rules come into effect at the end of 2017. Currently, banks are not required to impose any haircut on securities financing transactions. 

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