EFAMA feel that in certain cases – e.g. G7 government debt–haircuts are a more appropriate measure given the quality of that debt. We also feel there should be a de-minimis cut-off for concentration limits at €100 million. Beside the reduction of operational cost and difficulties in splitting small amounts of collateral over several issuers, the de-minimis rule applying on the diversification ration of collateral will not introduce any systemic risk. EFAMA insist on the crucial need to maintain the capability to deliver eligible collateral in the most efficient manner for both the collateral giver and collateral taker. The group warns that a bad calibration of eligible criteria would raise the following difficulties:
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a counterparty would not be compelled to refuse good quality collateral because of the breach of the limit by issuer. As explained above, what is essential in EFAMA‘s view in order to mitigate a counterparty risk is the quality of collateral, not its diversification;
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it should also be underlined that the constraints resulting from collateral diversification obligations may significantly increase the complexity linked to collateral management and therefore the costs of such collateral management;
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this cost increase could finally have a negative impact for investors. For that reason, we would be of the opinion that securities issued by the governments or central banks should be exempted from concentration limits;
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the ESAs should bear in mind that some banks are only willing to accept a small variety of security collateral (e.g. just German and French government bonds) as well as cash. Typically, in such cases, banks focus on the same kinds of eligible collateral.
Making concentration limits regarding securities collateral mandatory for all financial counterparties will lead to the consequence that UCITS and other regulated investment funds could be forced to provide cash collateral even if, in general, eligible securities collateral would be available.
Full EFAMA response
© EFAMA - European Fund and Asset Management Association
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