Securities lending key to "new finance" - Data Explorers
29 September 2011 London
Image: Shutterstock
In the global race for high quality government debt, the collateral upgrade trade is taking off and securities lending is "at the fulcrum of the new finance", says Data Explorers.
"In this 'new economy' life is upside down - asset managers have cash and banks don't," writes the analytics firm. "Treasury departments are busier than ever and exist in any company that handles large amounts of cash."
And the government bond lending market to upgrade collateral is cheap, between 15 to 20 basis points compared to 50 basis points in the overnight repo market. Moreover, banks are under pressure from capital requirements under Basel III regulations and regulators such as the Financial Services Authority (FSA) to avoid asset-liability mismatch by getting guaranteed or so called ‘term’ or ‘evergreen’ funding in place, which translates into borrowing G7 (US, France, Germany, Italy, Japan, United Kingdom, Canada) debt under a quasi lock-up, according to Data Explorers.
The people who will help a bank swap equities and corporate bonds for coveted G7 government bonds, it adds, are the big asset managers and the mechanism is the securities lending market and tri-party collateral management services.
"The Financial Stability Board are quite right, securities lending is a key component of shadow banking," writes Data Explorers.
"In this 'new economy' life is upside down - asset managers have cash and banks don't," writes the analytics firm. "Treasury departments are busier than ever and exist in any company that handles large amounts of cash."
And the government bond lending market to upgrade collateral is cheap, between 15 to 20 basis points compared to 50 basis points in the overnight repo market. Moreover, banks are under pressure from capital requirements under Basel III regulations and regulators such as the Financial Services Authority (FSA) to avoid asset-liability mismatch by getting guaranteed or so called ‘term’ or ‘evergreen’ funding in place, which translates into borrowing G7 (US, France, Germany, Italy, Japan, United Kingdom, Canada) debt under a quasi lock-up, according to Data Explorers.
The people who will help a bank swap equities and corporate bonds for coveted G7 government bonds, it adds, are the big asset managers and the mechanism is the securities lending market and tri-party collateral management services.
"The Financial Stability Board are quite right, securities lending is a key component of shadow banking," writes Data Explorers.
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