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PensionsEurope warns of unintended consequences of bank capital rules

EU bank capital rules should be amended to address the unintended negative consequences they have for pension schemes using derivatives, the European occupational pensions association has told the European Commission.

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.

This, in turn, generates “a need for (much) higher cash buffers for pension funds and other end users”, it said, increasing their liquidity risks.

It can also cause pension funds to rely more extensively on the repo market, it said.

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.

Pension funds should also be exempt from posting collateral in non-cleared transactions “until non-cash solutions for posting collateral are developed”, said PensionsEurope.

The industry group’s comments echo those of several of Europe’s largest pension managers in a submission to a more wide-ranging consultation from the Commission earlier this year

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