'No evidence' of widespread collateral shortfall, says BIS
29 May 2013 Basel
Image: Shutterstock
There is no evidence or expectation of any lasting or widespread scarcity of collateral in global financial markets, according to a Bank for International Settlements (BIS) report.
The looks at asset encumbrance, financial reform and the demand for collateral assets.
In his preface to the report, committee chairman and Federal Reserve Bank of New York president William Dudley said that while there is no evidence of a widespread collateral shortfall, there is evidence of banks鈥� increased reliance on collateralised funding markets, particularly in Europe.
He added that regulatory reforms and the shift towards central clearing of derivatives transactions will also add to the demand for collateral assets.
鈥淭emporary supply-demand imbalances, however, may arise in some cases, as the supply of collateral assets varies widely across jurisdictions and institutions.鈥�
Dudley said that 鈥渆ndogenous private sector responses鈥� such as collateral transformation could help to address supply-demand imbalances if and when they emerge.
鈥淲hile this will mitigate collateral scarcity, these activities are likely to come at the cost of increased interconnectedness, procyclicality and financial system opacity as well as higher operational, funding and rollover risks.鈥�
鈥淗ence, monitoring these developments and designing measures that limit any resulting adverse market implications for financial market stability should be an important focus of policy.鈥�
The looks at asset encumbrance, financial reform and the demand for collateral assets.
In his preface to the report, committee chairman and Federal Reserve Bank of New York president William Dudley said that while there is no evidence of a widespread collateral shortfall, there is evidence of banks鈥� increased reliance on collateralised funding markets, particularly in Europe.
He added that regulatory reforms and the shift towards central clearing of derivatives transactions will also add to the demand for collateral assets.
鈥淭emporary supply-demand imbalances, however, may arise in some cases, as the supply of collateral assets varies widely across jurisdictions and institutions.鈥�
Dudley said that 鈥渆ndogenous private sector responses鈥� such as collateral transformation could help to address supply-demand imbalances if and when they emerge.
鈥淲hile this will mitigate collateral scarcity, these activities are likely to come at the cost of increased interconnectedness, procyclicality and financial system opacity as well as higher operational, funding and rollover risks.鈥�
鈥淗ence, monitoring these developments and designing measures that limit any resulting adverse market implications for financial market stability should be an important focus of policy.鈥�
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