ESRB Conference on the macroprudential use of margins and haircuts

The European Systemic Risk Board (ESRB) hosted today in Frankfurt am Main an international conference on the potential macroprudential use of margins and haircuts. The aim of the conference was to gather the views of policymakers, academics and market participants from different jurisdictions on these new macroprudential instruments, as well as to develop a clear understanding of the main benefits from, and challenges to, applying them for financial stability purposes. Given their potential to lower pro-cyclicality in the financial system and to prevent the unsustainable build-up of leverage, they would primarily be applied to securities financing transactions and derivatives.

Introducing the topic of the conference, Francesco Mazzaferro, Head of the ESRB Secretariat, said: “It is important for the functioning of markets and the stability of economic growth that authorities are provided with adequate and effective tools to address systemic risks. In this respect, macroprudential use of margins and haircuts has the potential to materially extend the macroprudential toolbox. We are hosting this conference to help reach an international consensus on the issues that need to be addressed before policymakers can make effective use of these tools in the future.”

A keynote speech was then delivered by Vítor Constâncio, Vice-President of the European Central Bank (ECB). The first session, chaired by Prof. John Geanakoplos of Yale University, considered the systemic risks associated with the pro-cyclicality of collateral requirements and their role regarding the build-up of financial and synthetic leverage. Regulatory aspects, including the need for any further measures, were discussed in two subsequent panel discussions on centrally and non-centrally cleared transactions.

Finally, a high-level policy panel, moderated by Benoît Cœuré, Member of the Executive Board of the ECB, considered how global standard-setters and financial stability institutions view the potential for margins and haircuts as macroprudential instruments. The panel, comprised of Svein Andresen (Secretary General of the Financial Stability Board), Richard Berner (Director of the Office of Financial Research), Tomas Garbaravičius (Member of the Board of Lietuvos bankas) and Steven Maijoor (Chair of the European Securities and Markets Authority (ESMA)), discussed the high-level principles that would govern the potential use of margins and haircuts as macroprudential instruments and how to best pursue international coordination going forward.

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