Restrictions on repurchase agreements (repos), securities lending and non-credit derivatives between US banks and their affiliates take effect next month. But vital regulatory guidance is still needed.
Starting July 21 these transactions will be subject to quantitative limits for the first time. If a bank accepts as collateral any of these instruments entered into by an affiliate, this will also be subject to the limits.
As it stands, whether or not an affiliate relationship exceeds the 10% capital limit (or 20% limit for affiliate transactions combined) depends on how the Federal Reserve decides to measure credit exposure and how it treats netting arrangements.
A Federal Reserve spokesperson told IFLR that the agency has no timetable to issue guidance on these points. This is proving a particular problem for highly structured transactions where banks are looking to rely on an affiliate’s repo or derivative as collateral from a third party....