The FT, the Fed and the FRRP

An article in the FT on 21 March reported that “The Federal Reserve has assumed a much bigger role in a key funding market that had long been a prime component of the unregulated shadow banking system, reflecting central bank concerns that it poses a systemic risk”. The market, identified only as the repo market,…

Revisions to the Basel Leverage Ratio — a correction

The previous version of this blog questioned why, when the Basel Committee on Banking Supervision issued a revision to the Leverage Ratio in January 2014, it had not allowed the netting of collateral in matched positions with the same counterparty. There is a good reason for this and, I am afraid, the previous blog got…

Revisions to the Basel Leverage Ratio

The first details of the Leverage Ratio were released by the Basel Committee on Banking Supervision in June 2013. The big shock was the exclusion of any form of netting. In January 2014, however, Basel appeared to have relented and issued revisions to the Leverage Ratio that allow limited netting. These changes have been broadly…

Mapping the European Repo Market

The European interdealer repo market can be usefully mapped at three levels of activity: trading — the negotiation and execution of transactions; clearing — the netting by counterparties of (1) opposite obligations to deliver the same security (same ISIN) to each other on the same day and (2) opposite obligations to pay cash in the…

Repo, re-use and re-hypothecation

In the regulatory debate about shadow banking, and in particular repo, there has been much confusion about the legal terminology of collateral, some of it threatening to have substantive policy consequences. This blog is a basic primer on the difference between ‘re-use’ and ‘re-hypothecation’ of collateral. Outside the US, a repo works by means of…

How good a picture can Euro GC Pooling provide of the interbank euro GC repo market?

An interesting academic paper has recently suggested that Eurex Repo’s Euro GC Pooling (EGCP) system ‘allows us to comprehensively investigate the bilateral CCP-based part of the interbank segment of the euro GC repo market’ and makes it possible to ‘accurately document and analyse developments in the bilateral CCP-based interbank repo market’.[1] This is of topical…

How much does repo encumber collateral?

The issue The encumbrance of banks’ assets has become an issue of growing concern to regulators. Banks have increasingly resorted to secured funding in the wake of the financial crisis and as unsecured funding has become more expensive and generally scarce, while investors have increasingly preferred secured assets in order to mitigate heightened counterparty credit…