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…
Tag: repo
Say goodbye to ‘re-hypothecation’ and ‘re-use’. Say hello to ‘re-sale’
What’s in a word? Well, in the quasi-legal world of regulation, it can be everything! For example, in the post-crisis regulatory dialogue over the repo market, the words ‘re-hypothecation’ and ‘re-use’ have been causing endless mischief. This blog proposes that we therefore dispense with those misnomers and import the word ‘re-sale’ as a less ambiguous…
A good paper on collateral rehypothecation. No need for the spin.
Those interested in the rehypothecation debate should read a paper written by Vincent Maurin of the European University Institute called Re-using the Collateral of Others: A General Equilibrium Model of Rehypothecation (EUI, March 2014). What draws attention is the claim that rehypothecation is unnecessary, that there is a more efficient alternative, and that a ban or restriction on rehypothecation would…
Problems with the NSFR
Basel III’s Net Stable Funding Ratio (NSFR) was described in a previous blog. This piece identifies some of the undesirable impacts of the proposal. Unsecured versus secured funding One of most notable features of the NSFR is that unsecured and secured funding sources are given the same ASF factors. In the case of interbank funding…
An introduction to the NSFR for repo dealers in a rush
The NSFR is a key Basel III reform to promote a more resilient banking sector by limiting over-reliance on short-term wholesale funding. It is designed to complement the Liquidity Coverage Ratio (LCR) but, whereas the LCR focuses on cashflow behaviour under market-wide liquidity stresses over 30 days, the NSFR looks at the resilience of the…
An introduction to the Basel III Net Stable Funding Requirement (NSFR) for insomniacs or obsessives in the repo market
The NSFR measures a bank’s Available Stable Funding (ASF) relative to its Required Stable Funding (RSF). Banks will have to maintain their NSFRs at 100% or more. NSFR= ASF/RSF The NSFR is one of the key Basel III reforms to promote a more resilient banking sector through structural changes in the liquidity risk profiles of…
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…