ISLA: From Endgame to preparing for the long game
19 June 2026 Portugal
Image: K_illustrator_Photo/stock.adobe.com
The industry is at a critical inflection point, according to 鈥楾he Capital Efficiency Mandate: Pledge, Clearing, & the New Basel Reality鈥� panel at the ISLA 33rd Annual 网爆吃瓜 Finance & Collateral Management Conference in Lisbon. Education, knowledge, and agility are going to be required to be able to optimise capital in a new world.
It has been 13 years since the Bank of International Settlements compiled the Basel Committee on Banking Supervision, following the global financial crisis.
The original objectives for the committee included the need to improve the banking sector鈥檚 ability to absorb shocks; increase transparency to ensure that regulated banks maintain comprehensive disclosures regarding their underlying risk exposures; strengthen risk management; enhance capital requirements; reduce leverage; and address liquidity risks. These core objectives were designed to foster a structured, resilient banking sector and materially reduce the likelihood of future systemic crises.
鈥淚t has been quite some journey,鈥� one panellist stated, noting that the panel sat on the eve of the closing of the Basel III Endgame public consultation period in America.
In the plethora of reforms post-crisis, this is about counterparty risk and how banks measure their counterparty risks, a panellist said. The industry was built with banks being able to grade their counterparties, translating that into a counterparty risk weight that reflects the loan risk of the counterparty on the securities lending side.
Post-crisis, regulators wanted to introduce standardised approaches that limited the benefit that banks can get from those models. The industry needs to be able to manage capital usage under those standardised approaches, the panel heard.
We are entering a completely new paradigm, where there is a recalibration of what has been happening in the past 12 years. SLR in the US used to be a five per cent minimum Tier-1 leverage ratio, it has now been modified and most, if not all, of G-SIBs adopted this on 1 January 2026.
According to one of the panellists, a lot of this is aligned in the backdrop of a massive AI technology boom, and a very accommodative, fiscal, and monetary administration. Deregulation created the capacity for balance sheet growth.
There is an attempt being made to have some of the standardised calculations more closely reflect 鈥渞isk reality鈥� by adding, for example, correlations back into the rules, from a standardised perspective. The panellist added that 鈥渢he hand that giveth, taketh away鈥� 鈥� meaning that firms can no longer look at those more advanced risk models that they have been able to rely upon internally.
The key aspect to consider as the market looks to the future, is how we bring some of these objectives more closely together. In terms of transparency 鈥� such as the data being provided for SFTR 鈥� how does that further inform additional changes to the regulation so that regulators can continue to ensure that the way in which banks hold liquidity and capital charges, more closely reflects risk reality.
Moving forward, the panel discussed the tools in the capital management toolkit, which are: central counterparties; buy side/ Fund Credit Ratings (CRA/ECAI/Internal); pledge (title-transfer alternative); netting and legal (CPMA Cross-Product Solution).
Historically, the view has been that these tools are competing with each other, but they do not need to be. For one panellist, 鈥榯he smart money鈥� is looking at these as complementary solutions that you can dial into or out of depending on market conditions and client need.
Another panellist highlighted the significance for all lenders and beneficial owners to understand these tools and why they are important, noting that 鈥渢he playing field has changed and it鈥檚 not fair鈥�.
Looking into how this toolkit could play into a future world where pan capital market buy side funds might want to align their credit worthiness with the risk and capital.
Credit ratings are perhaps 鈥渢he most natural鈥� solution, a panellist stated. They go on to inform the audience that for non-US banks, credit ratings determining the risk weight is written into the standardised approach. There are questions around if it will be a user pays model, as well as questions around scalability and cost effectiveness.
They noted that credit ratings are very effective because they address SFT capital usage and fits with what the US banks will need, which is the validation of the investment grade assessment to obtain a 65 per cent risk weight.
Concluding the discussion, panellists hoped to see a final rule for Basel by the end of the year.
It has been 13 years since the Bank of International Settlements compiled the Basel Committee on Banking Supervision, following the global financial crisis.
The original objectives for the committee included the need to improve the banking sector鈥檚 ability to absorb shocks; increase transparency to ensure that regulated banks maintain comprehensive disclosures regarding their underlying risk exposures; strengthen risk management; enhance capital requirements; reduce leverage; and address liquidity risks. These core objectives were designed to foster a structured, resilient banking sector and materially reduce the likelihood of future systemic crises.
鈥淚t has been quite some journey,鈥� one panellist stated, noting that the panel sat on the eve of the closing of the Basel III Endgame public consultation period in America.
In the plethora of reforms post-crisis, this is about counterparty risk and how banks measure their counterparty risks, a panellist said. The industry was built with banks being able to grade their counterparties, translating that into a counterparty risk weight that reflects the loan risk of the counterparty on the securities lending side.
Post-crisis, regulators wanted to introduce standardised approaches that limited the benefit that banks can get from those models. The industry needs to be able to manage capital usage under those standardised approaches, the panel heard.
We are entering a completely new paradigm, where there is a recalibration of what has been happening in the past 12 years. SLR in the US used to be a five per cent minimum Tier-1 leverage ratio, it has now been modified and most, if not all, of G-SIBs adopted this on 1 January 2026.
According to one of the panellists, a lot of this is aligned in the backdrop of a massive AI technology boom, and a very accommodative, fiscal, and monetary administration. Deregulation created the capacity for balance sheet growth.
There is an attempt being made to have some of the standardised calculations more closely reflect 鈥渞isk reality鈥� by adding, for example, correlations back into the rules, from a standardised perspective. The panellist added that 鈥渢he hand that giveth, taketh away鈥� 鈥� meaning that firms can no longer look at those more advanced risk models that they have been able to rely upon internally.
The key aspect to consider as the market looks to the future, is how we bring some of these objectives more closely together. In terms of transparency 鈥� such as the data being provided for SFTR 鈥� how does that further inform additional changes to the regulation so that regulators can continue to ensure that the way in which banks hold liquidity and capital charges, more closely reflects risk reality.
Moving forward, the panel discussed the tools in the capital management toolkit, which are: central counterparties; buy side/ Fund Credit Ratings (CRA/ECAI/Internal); pledge (title-transfer alternative); netting and legal (CPMA Cross-Product Solution).
Historically, the view has been that these tools are competing with each other, but they do not need to be. For one panellist, 鈥榯he smart money鈥� is looking at these as complementary solutions that you can dial into or out of depending on market conditions and client need.
Another panellist highlighted the significance for all lenders and beneficial owners to understand these tools and why they are important, noting that 鈥渢he playing field has changed and it鈥檚 not fair鈥�.
Looking into how this toolkit could play into a future world where pan capital market buy side funds might want to align their credit worthiness with the risk and capital.
Credit ratings are perhaps 鈥渢he most natural鈥� solution, a panellist stated. They go on to inform the audience that for non-US banks, credit ratings determining the risk weight is written into the standardised approach. There are questions around if it will be a user pays model, as well as questions around scalability and cost effectiveness.
They noted that credit ratings are very effective because they address SFT capital usage and fits with what the US banks will need, which is the validation of the investment grade assessment to obtain a 65 per cent risk weight.
Concluding the discussion, panellists hoped to see a final rule for Basel by the end of the year.
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