In a fascinating piece of statistical detective work published in the latest BIS Quarterly Review, three of its foremost staff members argue that the use of FX swaps and forwards is hiding a massive quantity of debt because current accounting conventions place it off balance sheet. They estimate that, in respect of US dollar debt,…
Author: Richard Comotto
Senior Visiting Fellow at the ICMA Centre
Still fretting about re-hypothecation
There is a widely quoted paper re-use and re-hypothecation by Egemen Eren — Intermediary Funding Liquidity and Rehypothecation as Determinants of Repo Haircuts and Interest Rates (Institute of Global Finance, 2015) — which provides another example of the danger for researchers of disregarding the difference between the re-use of collateral sold in repo (re-selling) and…
Academics, you re-hypothecate at your risk!
In a blog in May 2015, I tried to explain that, outside the US repo market, it was incorrect to use the term ‘re-hypothecation’ to describe the use of collateral purchased in a repo by its buyer. Such use is usually termed ‘re-use’ but would be better called ‘re-sale’. The crux of the matter is…
ESMA offers hope for the grammatically challenged
Dear students I recently jokingly suggested, in response to the draft assignments you submitted, that some of you had such poor grammar and punctuation that your only future in finance might be as an internet fraudster. This profession is notable for slack drafting. You may recall that a spelling mistake recently led to the discovery…
How to make regulation even more complicated
I have been reading through the Basel Committee of Banking Supervisors’ (BCBS) Consultative Document of 5 November 2015 on Haircut Floors for Non-Centrally Cleared Securities Financing Transactions. This sets out the proposed incorporation into Basel III of the recommendations of Workstream 5 of the Financial Stability Board (FSB) on securities financing transactions. In particular, the…
Emerging market repo news
New bond and repo market segment opened in China China announces retail repo market. On 14 February, the PBOC announced a measure to boost the development of the bond market and increase direct financing by opening the Bank OTC Market. This is an extension to the existing interbank bond market. It is open to a…
Scary stories from the FT — but is it the story that is scary or the holes in the story?
Financial journalists have a difficult job. This is particularly true when they are commenting on markets. These are complex, subtle and dynamic systems which journalists have to observe from the outside. Their problems are usually compounded by lack any direct experience of markets and a paucity of professional or academic literature to consult. If journalists…
Careless talk on Bank Undeground
Last year, the Bank of England took a leaf out of the FRBNY’s book and launched a blog site for its analysts. The site is called Bank Underground. Notwithstanding this attempt to sound a big edgy and an unfortunate tendency towards silly titles (eg “Izzy Whissy let’s get Vizzy”), there’s good stuff here. But there…
A case of too many cooks spoiling the SFTR broth: how the EU messed up the definition of a repo
The about-to-be promulgated EU Securities Financing Transaction Regulation (SFTR) is another in a long line of new financial legislation emanating from Brussels that demonstrates how not to write law. Drafting with one’s head in the sand The whole dysfunctional process would appear to start with officials at the European Commission and policy-makers in the European…
Repo markets in East Africa
Let’s cut to the quick: there are currently no true repo markets in East Africa! In Kenya, Rwanda, Tanzania and Uganda, there is an interbank instrument called a ‘horizontal repo’ (as opposed to the ‘vertical repo’, which is an instrument between commercial banks and the central bank in each of those countries). In Burundi, there…