News on Securities Finance Regulations | ISLA: Wrong name, i.e. Basel Endgame

During a groundbreaking discussion at the International Securities Lending Association (ISLA) conference, the Basel Endgame discussion seemed to hinge on a noteworthy theme – a bit of a misnomer, since there will actually be no end. That’s good, one panelist noted.

The jokes continued: “Endgame was a triumph of marketing over content,” or as another panelist succinctly put it, “Endgame was misnamed.”

While the pun may be somewhat apt given the industry’s interest in when and how this will “end” and what exactly the consequences will be, the panel nonetheless seriously addressed the key issues.

Perhaps, in his own words “controversially”, one of the speakers highlighted an interesting assessment of the current Basel regulations. In fact, they were successful. He suggests that banks have never been as well capitalized as they are today.

While these regulations were introduced in many ways in the wake of the 2008 credit crunch and the global financial crisis, the resilience of the financial sector in recent times – especially during Covid – can be seen as evidence of their effectiveness.

Of course, they are not without problems. Speakers touched on another key area that was highlighted throughout many of the day’s panels – the inconsistency between regulators across regions and exactly how the myriad of related rules and requirements align, particularly given the cross-border nature of securities lending.

Similarly, estimates of increased capital requirements vary widely, but according to one participant, “they are unlikely to be capital neutral for anyone. The banks have been warned.” But he suggested that exactly how much it will be and what the true impact will be remains to be seen when the time actually comes.

Moving on to the US elections – somewhat inevitably – one member believes the Trump White House will be crucial. He noted that during President Trump’s previous term, one of the first things he did was to push the Basel discussion “into the long grass.” If he follows suit in a second term, the eventual “endgame” will likely be delayed.

A general consensus has emerged among those discussing the issue: For the United States, it may be a matter of doing it now or never.

However, a more positive counter-argument was presented. If a Republican with a generally right-wing approach to financial services were elected, it is possible that his goal would be to bring the United States into line with Europe to the benefit of all.

While Basel and securities lending are rarely a major topic on the national political scene, that seems to be what is happening in the US. Basel is becoming politically weaponized in many states and nationally, so much so that there was a political ad about it during the Superbowl. It’s hard to believe, but as the speaker confirmed, “I’m not kidding.”