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Responding to a Commission consultation on the implementation of Net Stable Funding Ratio (NSFR) rules, PensionsEurope said these, alongside leverage-ratio requirements for banks, would have a detrimental impact on pension funds and their service providers.
The requirements are part of new EU bank capital rules introduced in response to the financial crisis, designed to shore up banks’ capitalisation.
However, PensionsEurope and others in the European pensions industry believe certain aspects of the new requirements – set out in the Capital Requirements Directive (CRD) IV – will have unintended consequences for pension schemes by incentivising banks to accept cash only as collateral for non-cleared over-the-counter (OTC) derivative trades, whereas previously they would also accept high-quality government bonds.
The NSFR and leverage-ratio rules are causing a movement toward cash-only collateral agreements with banks in the derivatives market, according to PensionsEurope.
PensionsEurope said the impact of the rules “directly contradicts” the objective of the European Market Infrastructure Regulation (EMIR) and “would introduce disproportionate cost and risk to EU pensioners”.
It is calling on EU policymakers to consider amending the NSFR and leverage-ratio rules to accept high-quality government bonds, “with appropriate haircuts”, as variation margin (VM) – payment made on a daily or intra-day basis for profits or losses.