Velocity of Pledged Collateral: Analysis and Implications

November 1, 2011

Preview Citation

Format: Chicago

Manmohan Singh. Velocity of Pledged Collateral: Analysis and Implications, (USA: International Monetary Fund, 2011) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Large banks and dealers use and reuse collateral pledged by nonbanks, which helps lubricate the global financial system. The supply of collateral arises from specific investment strategies in the asset management complex, with the primary providers being hedge funds, pension funds, insurers, official sector accounts, money markets and others. Post-Lehman, there has been a significant decline in the source collateral for the large dealers that specialize in intermediating pledgeable collateral. Since collateral can be reused, the overall effect (i.e., reduced ?source' of collateral times the velocity of collateral) may have been a $4-5 trillion reduction in collateral. This decline in financial lubrication likely has impact on the conduct of global monetary policy. And recent regulations aimed at financial stability, focusing on building equity and reducing leverage at large banks/dealers, may also reduce financial lubrication in the nonbank/bank nexus.

Subject: Banking, Collateral, Expenditure, Financial institutions, Financial statements, Hedge funds, Pension spending, Public financial management (PFM), Securities

Keywords: Bank, Cash collateral, Churning, Client collateral, Collateral, Collateral Received, Desk of dealer, Europe, Financial statements, Global, Hedge fund, Hedge funds, Monetary policy, Pension spending, Pledged collateral, Rehypothecated collateral, Rehypothecation, Securities, Securities lending, Squeeze term, Times velocity, Velocity of collateral, WP

Publication Details

Pages:

24
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/256
Stock No:

WPIEA2011256
ISBN:

9781463923952
ISSN:

1018-5941

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