MNI BRIEF: NBFIs Need Minimum Haircuts - BIS's De Cos

Regulators should impose minimum haircuts on non-bank financial institutions and require greater use of central clearing in cash and repo markets to reduce the risk of “non-linear sovereign yield spikes” in sovereign bond markets, Bank for International Settlements General Manager Pedro Hernandez de Cos said on Thursday.

“Two specific measures could be particularly effective in addressing NBFI leverage: promoting greater use of central clearing and introducing minimum haircuts,” De Cos said in a speech at the London School of Economics. "Imposing minimum haircuts would enhance the stability and resilience of the system.”  (See MNI INTERVIEW: IMF’s Adrian Sees Risks From Frothy Stocks)

With NBFIs an increasing presence in sovereign debt markets and heavily reliant on FX swaps with short maturities, De Cos said central bank swap lines would be critical to stabilise the global financial system at times of stress.