The Financial Stability
Board (FSB) is studying collateral re-use as a part of its
work on the regulation of the shadow banking sector. Counsel in
the US are considering the FSB proposals in the context of how
shadow bank regulation may evolve.
Last month, the FSB released a report
Possible Measures of Non-Cash Collateral Re-Use. The
report is pitched as an attempt to increase regulatory
understanding of collateral re-use practices. As such, it
focuses on financial stability concerns.
Collateral re-use is the practice of using a pool of assets
for use as collateral in more than one transaction, reducing
transaction, liquidity and funding costs as a result.
The report acknowledges that collateral re-use plays an
important role in financial markets, in that it increases the
overall availability of collateral. However, it’s
concerned with potential risks, noting how reusing collateral
can increase interconnectedness among market participants and
so contribute to...