What the counterparty is buying is an instrument that is backed by encumbered Government securities. I would be glad to hear your views on this debate. Treatment of derivatives under NSFR is being actively debated internationally. Further, margin requirement for OTC derivatives is another area that is being widely discussed.
The NSFR currently treats initial margin and contribution to CCPs’ default funds (DF) equivalently, i.e., same RSF factors. This may be because in economic terms, these two types of collateralisation are close substitutes, and may require collateral for counterparty credit risk events.