Securities lending pops up at AFME liquidity conference
09 February 2012 London
Image: Shutterstock
Securities lending operations and repo markets need to "come back" to successfully deleverage the system as a whole, said a leading economist at AFME's European Market Liquidity Conference in London.
A panel of economists discussed the unintended consequences to the financial system as a result of pressures on banks to deleverage some $3 trillion dollars. One panelist noted that taking "financial plumbing" such as securities lending and repo markets into account bumped that figure up considerably.
"Central banks tend to look at the monetary angle...but looking at repo and securities lending operations, those numbers are as big. Inflation and monetary policy [fail to take into account] that the world is a lot more complex than that...the financial plumbing aspects of deleveraging, which is in a way the system-wide use of all sorts of collateral to reduce market risk, need to be factored in...those pieces need to come back, that is what will complete the system," he said.
In 2006, the Federal Reserve stopped publishing figures tracking M3 money supply, which includes repo and securities lending market paper. The Bank of England and ECB continue to track it.
Probably the hottest topic during the conference was Greece's debt crisis, about which a wide variety of lively opinions were expressed. However, some speakers noted that Greece is not the problem, unwinding the problem is going to be the problem. Thought the LTRO is widely viewed as a positive development, it is also seen as a measure which delays facing the political pain of this inevitable circumstance.
A panel of economists discussed the unintended consequences to the financial system as a result of pressures on banks to deleverage some $3 trillion dollars. One panelist noted that taking "financial plumbing" such as securities lending and repo markets into account bumped that figure up considerably.
"Central banks tend to look at the monetary angle...but looking at repo and securities lending operations, those numbers are as big. Inflation and monetary policy [fail to take into account] that the world is a lot more complex than that...the financial plumbing aspects of deleveraging, which is in a way the system-wide use of all sorts of collateral to reduce market risk, need to be factored in...those pieces need to come back, that is what will complete the system," he said.
In 2006, the Federal Reserve stopped publishing figures tracking M3 money supply, which includes repo and securities lending market paper. The Bank of England and ECB continue to track it.
Probably the hottest topic during the conference was Greece's debt crisis, about which a wide variety of lively opinions were expressed. However, some speakers noted that Greece is not the problem, unwinding the problem is going to be the problem. Thought the LTRO is widely viewed as a positive development, it is also seen as a measure which delays facing the political pain of this inevitable circumstance.
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