Adur, West & East Worthing Party including East Arun

Central banks’ posting of collateral, Round 2

Sharon Bowles MEP for South-East England, who chairs the European Parliament’s Economic and Monetary Affairs Committee, welcomes the announcement by the Bank of England that they will no longer ask for a special exemption when it comes to certain derivative transactions that it enters into on behalf of the UK. Central banks’ often enter into such transactions in order manage their balance sheets and foreign exchange reserves.

Sharon previously attempted to address this in the European Markets and Infrastructure Regulation (EMIR) by not exempting central banks from having to post collateral with banks bilaterally. This was opposed by the Council and the Commission.

However, Sharon has again put in an amendment to remove the exemption in the capital requirements legislation, currently being negotiated in Brussels.

Sharon said: “Both the Commission and the Council rubbished my proposal for central banks to post collateral in EMIR, despite pointing out to them that it would in fact be a cheaper arrangement for governments and more secure for banks. The Bank of England has now seen the logic and hopefully others will follow suit. In the upcoming capital requirements legislation member states have once again given themselves an exemption from the capital charges on derivatives transactions. I have proposed, on the other hand, for the European Banking Authority to play a role in the application of such a waiver. Hopefully this time the Commission will not be so faint-hearted and side with the European Parliament on their sensible proposal.”