IMN: Eat, sleep, balance, repeat
01 February 2017 Florida
Image: Shutterstock
The emergence of central bank reverse repo programmes is an admission that balance sheet regulations have gone too far, according to the keynote speaker at IMN's Beneficial Owners' International Securities Finance & Collateral Management Conference.
Keynote speaker Manmohan Singh, a senior economist at the International Monetary Fund, suggested that central bank quantitative easing policies are causing the traditional “plumbing” of financial markets to “rust” due to an over-reliance on government programmes.
“There’s two balance sheets in play,” Singh explained.
Non-banks that are accepting newly printed money for their bonds are contributing to the emerging liquidity issues because these securities “end up siloed at the US Federal Reserve,” instead of being reused within the market.
Singh also highlighted the risks posed by the expanding divergence between the secured and unsecured funding rates. The rift that currently exists between these, although still within acceptable parameters, is an unhealthy feature of the current market environment.
The rift must be closely monitored in the future, especially if the much anticipated rate hike occurs in March as some panellists predicted.
If the two rates continue to drift apart, the monetary policy transmission will be impaired, Singh concluded.
Keynote speaker Manmohan Singh, a senior economist at the International Monetary Fund, suggested that central bank quantitative easing policies are causing the traditional “plumbing” of financial markets to “rust” due to an over-reliance on government programmes.
“There’s two balance sheets in play,” Singh explained.
Non-banks that are accepting newly printed money for their bonds are contributing to the emerging liquidity issues because these securities “end up siloed at the US Federal Reserve,” instead of being reused within the market.
Singh also highlighted the risks posed by the expanding divergence between the secured and unsecured funding rates. The rift that currently exists between these, although still within acceptable parameters, is an unhealthy feature of the current market environment.
The rift must be closely monitored in the future, especially if the much anticipated rate hike occurs in March as some panellists predicted.
If the two rates continue to drift apart, the monetary policy transmission will be impaired, Singh concluded.
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