This month Barclays became the latest bank to highlight concerns about the impact of new regulations on the repo market. But as new rules threaten the market, industry initiatives are increasing efficiencies.
Barclays joined JP Morgan this month in arguing that
initiatives such as the Federal Reserve’s proposed
leverage ratio rule will encourage banks to reduce low
risk-weighted assets and potentially reduce activity in the
repo market, lessening the supply of available assets and
increasing costs for end users.
The warnings come as the demand for quality collateral
begins to rise as the OTC clearing mandate is implemented in
the US and Europe gears up for OTC clearing. Much has been
written on the subject with extreme predictions of trillions of
dollars of additional collateral required to meet the
It is not clear yet what the final figure will be, but the
cost for the buy-side to trade will clearly rise. Banks balance
sheets will be constrained by new capital requirements and they
will seek higher compensation for transformation and repo
services through a widening of the spread between low risk and
high risk assets.
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