Treasury and Trade Solutions
16
horizon and which is determined
by the liquidity characteristics and
residual maturities of the assets held
by the bank, including off-balance
sheet exposures, will be applied to
the portion of undrawn irrevocable
and conditionally revocable credit/
liquidity facilities. This will add an
element of additional funding cost.
National variations on implementing
the RSF factors for other contingent
funding, such as trade finance
guarantees and letters of credit,
may also add an element of
fragmentation between markets
with varying associated cost
implications for corporates.
However, the Basel timetable
foresees the NSFR to be in force
only by 2019, which still leaves some
time for the industry to adjust.
MMF reform
One important focus of regulators
in the post-crisis period has been
Money Market Funds (MMFs), which
are an important element of many
corporates’ investment strategy.
In September 2013, the European
Commission proposed a European
framework designed to make MMFs
more resilient to future financial
crisis and, at the same time, secure
their financing role for the economy.
The European framework continues
to evolve, with the European
Parliament due to consider the MMF
Regulation during a plenary session
in late April 2015, but the broad
shape of the regulation is known.
The proposed MMF Regulation
requires levels of daily/weekly
liquidity for the MMF to be able
to satisfy investor redemptions
(MMFs are obliged to hold at least
10% of their assets in instruments
that mature on a daily basis and
an additional 20% of assets that
mature within a week). It also
requires clear labelling on whether
the fund is a short-term MMF or
a standard one (short-term MMFs
hold assets with a residual maturity
not exceeding 397 days while the
corresponding maturity limit for
standard MMFs is two years).
One important aspect of the
regulation, a capital cushion (the
3% buffer) for constant net asset
value (CNAV) funds to support
stable redemptions in times of
decreasing value of the MMFs’
investment assets, was dropped by
the European Parliament in early
April. A CNAV fund seeks to maintain
a stable €1 per share when investors
redeem or purchase shares. In
February, the ECON committee of
the European Parliament voted
in favor of requiring every CNAV
MMF to become an “EU Public Debt
CNAV MMF,” a “Retail CNAV MMF”
or a “Low Volatility NAV MMF.”
Low Volatility NAV MMFs would be
permitted to display a constant NAV
when certain conditions are fulfilled,
but are subject to a five-year
‘sunset’ clause.
Other reform measures include
a requirement to implement
customer profiling policies to help
One important
focus of
regulators
in the post-
crisis period
has been
Money Market
Funds (MMFs),
which are an
important
element
of many
corporates’
investment
strategy.
