RMA Paper Addresses How Negative Interest Rates Could Affect Securities Lending

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Oct 05, 2020, 13:33 ET

PHILADELPHIA, Oct. 5, 2020 /PRNewswire/ -- A new RMA white paper highlights the issues the securities lending industry must address in the event of a negative interest rate policy in the U.S.

"Your First Run-In with Negative Interest Rates?" offers considerations for negative interest rates in the U.S. and their potential impact on securities lending when the collateral is cash. The important paper is the work of RMA's Council on Securities Lending, which believes that even if a negative rate environment is not probable, it is necessary to be prepared for how such a policy could impact securities lending.

The paper considers:

How negative rates could affect the demand and economics of securities lending.
The operational and systemic considerations of negative cash reinvestment yields.
How NAV reinvestment funds would be processed.
Tax implications.

"Every firm must consider the implications of negative interest rates in consultation with their cash management teams and other internal experts," said Nancy Foster, President & CEO, The Risk Management Association. "This actionable white paper details the necessary steps to do so."

"Negative interest rates could affect every aspect of securities lending, including borrower demand, investment valuation, taxation, accounting, operating models, and more," said Fran Garritt, Director, Securities Lending, The Risk Management Association. "This paper is a guide for agent lenders and direct lenders in assessing the implications of negative interest rates and their impact on negative cash reinvestment yields."

To read "Your First Run-In with Negative Interest Rates?" click here.

About RMA
Founded in 1914, The Risk Management Association is a not-for-profit, member-driven professional association whose sole purpose is to advance the use of sound risk management principles in the financial services industry. RMA promotes an enterprise approach to risk management that focuses on credit risk, market risk, and operational risk. Headquartered in Philadelphia, Pennsylvania, RMA has 1,900 institutional members that include banks of all sizes as well as nonbank financial institutions. They are represented in the Association by 18,500 individuals located throughout North America, Europe, Australia, and Asia/Pacific.

SOURCE The Risk Management Association