On Monday 31 March, the European Commission proposed to maintain the current rules on liquidity requirements (Net Stable Funding Ratio or NSFR) for certain financing transactions with a maturity of less than six months and for unsecured lending transactions, as the current European rules are due to change on 28 June.
The EU institution is therefore proposing to amend Regulation 515/2013 on banking prudential requirements (itself revised by Regulation 2019/876) so that certain short-term securities financing transactions (SFTs), under which assets such as sovereign securities can be temporarily exchanged for cash, continue to benefit from less stringent liquidity requirements than those laid down in the ‘Basel III’ international standards.
“These transactions are essential for banks to provide liquidity to markets, particularly for government bonds”, the Commission stressed in a press release. It justifies this legislative initiative by noting that other jurisdictions (United States, Canada, Japan, United Kingdom, Switzerland) intend to deviate permanently from the Basel III standards for SFTs. The European Union must therefore adopt rules that preserve market liquidity and the competitiveness of the banking sector, which would otherwise see an increase in stable financing requirements for SFTs.
Applicable since June 2021, the current rules have also proved their solidity during periods of market stress, such as the Russian military invasion of Ukraine or the failure of American banks and Crédit Suisse in the spring of 2023, according to the Commission.
To see the legislative proposal: https://aeur.eu/f/g60 (Original version in French by Mathieu Bion)