Dr Farman Seyed

The FSB’s Consultation on Liquidity Preparedness for Margin and Collateral Calls: is it all about liquidity?

The FSB consultation report on Liquidity Preparedness for Margin and Collateral Calls (https://www.fsb.org/2024/04/liquidity-preparedness-for-margin-and-collateral-calls-consultation-report/), responded to a number of high-profile loss-making transactions by various banks involved in lending against collateral comprised of large positions in single listed stocks. Recently, the most talked-about debacle was that of  Archegos Capital Management (Archegos), the family office of Bill Hwang with total assets reported at around $36bn. In a nutshell, the prices of several stock positions held by Archegos dropped  for different reasons and it could not post enough cash collateral, so some of the lending banks had to liquidatethe collateral shares. Some banks managed to exit their positions quickly, but other chose not to, and suffered substantial losses.

This article provides a detailed overview of the issues involved in such large transactions and highlights the key procedural requirements and potential regulatory developments needed.