A New Day for Borrower Default Indemnification

James Slater, Global Head of Securities Lending and Finance at BNY Mellon, explores how new and proposed regulation seems likely to change customary securities lending practices related to borrower default indemnification. For many years, beneficial owners, ranging from mutual funds to both public and private pension plans, have relied on bank securities lending agents to enable them to obtain incremental revenue from their securities holdings in a very safe manner. To provide additional comfort as to the safety of the transactions, banks have long provided borrower default indemnification as part of their securities lending services. However, according to Slater, the Dodd-Frank Act and Basel III may make borrower default indemnification difficult to provide or obtain.