Minimum Capital Requirements for Counterparty Credit Risk (CCR) and Credit Valuation Adjustment (CVA)

Cash-collateralized securities lending transactions are exempted from the haircut floors where: (1) Securities are lent (to the bank) at long maturities and the lender of securities reinvests or employs the cash at the same or shorter maturity, therefore not giving rise to material maturity or liquidity mismatch. (2) Securities are lent (to the bank) at call or at short maturities, giving rise to liquidity risk, only if the lender of the securities reinvests the cash collateral into a reinvestment fund or account subject to regulations or regulatory guidance meeting the minimum standards for reinvestment of cash collateral by securities lenders set out in Section 3.1 of the Policy Framework for Addressing Shadow Banking Risks in Securities Lending and Repos. 36 For this purpose, banks may rely on representations by securities lenders that their reinvestment of cash collateral meets the minimum standards. 10.5 Banks that borrow (or lend) securities are exempted from the haircut floors on collateral upgrade transactions if the recipient of the securities that the bank has delivered as collateral (or lent) is either: (i) unable to re-use the securities (for example, because the securities have been provided under a pledge arrangement); or (ii) provides representations to the bank that they do not and will not re-use the securities. 36 Financial Stability Board, Strengthening oversight and regulation of shadow banking, Policy Framework for addressing shadow banking risks in securities lending and repos, 29 August 2013, fsb.org/wpcontent/uploads/r_130829b . Haircut Floors