Collateral Reuse and Balance Sheet Space

30 Pages Posted: 16 Oct 2017

See all articles by Manmohan Singh

Manmohan Singh

International Monetary Fund (IMF)

Date Written: May 2017

Abstract

Transactions on wholesale capital markets are often secured by marketable collateral. However, collateral needs balance sheet space to move within the financial system. Certain new regulations that constrain private sector bank balance sheets may have the effect of impeding collateral flows. This may have important consequences for monetary policy transmission, for short term money market functioning, and for market liquidity. In this context (and in contrast to the literature, which has focused mainly on the repo market), this paper analyzes securities-lending, derivatives, and prime-brokerage markets as suppliers of collateral. It highlights the incentives created by new regulations for different suppliers of collateral. Moreover, it argues that the central banks should be mindful of the effect of their actions on the ability of markets to intermediate collateral.

Keywords: collateral velocity; securities lending; prime brokerage; OTC derivatives; repo, collateral velocity, securities lending, prime brokerage, OTC derivatives, repo, Government Policy and Regulation, International Monetary Arrangements and Institutions, Corporation and Securities Law

JEL Classification: G21, G28, F33, K22

Suggested Citation

Singh, Manmohan, Collateral Reuse and Balance Sheet Space (May 2017). IMF Working Paper No. 17/113. Available at SSRN: https://ssrn.com/abstract=3053196

Manmohan Singh (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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