EACB Comments on the European Commission’s Call for Evidence on NSFR Amendments

The EACB has shared its views on the European Commission’s call for evidence regarding proposed changes to the prudential treatment of SFTs and short-term unsecured transactions under the NSFR. This consultation marks an important step in tackling key issues related to liquidity management and ensuring the competitiveness of EU banks.
 
The EACB expresses its support for the European Commission’s proposal to extend the current transitional supervisory treatment for SFTs and unsecured transactions. For banks, the Basel treatment will translate into higher costs and reduce their ability to cover short positions on securities. Higher RSF factors would make funding more expensive for banks, reducing liquidity in sovereign debt markets. Similarly, market-making activities in sovereign debt could become unsustainable within regulated entities. This could lead to these operations shifting to less-regulated sectors, ultimately compromising transparency and stability across financial markets.
 
Finally, we stress the urgency for taking the competitiveness of the EU banking system and financial market in general in greater consideration in the policy approach. The possible increase of costs given more conservative RSF factors could lead to increased funding costs for European banks in SFT markets, creating a competitive disadvantage compared to banks in jurisdictions like the US and UK. In fact, these jurisdictions have already adopted permanently lower RSF requirements. This disparity could distort the level playing field in the highly competitive, high-volume and low-margin SFT market.