{
  "title": "Collateral Reuse and Balance Sheet Space",
  "publication": "IMF Working Papers, May 8, 2017",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2017/05/08/collateral-reuse-and-balance-sheet-space-44892",
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  "summary": "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.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- Transactions on wholesale capital markets are often secured by marketable collateral.\n- Collateral needs balance sheet space to move within the financial system.\n- Certain new regulations that constrain private sector bank balance sheets may have the effect of impeding collateral flows.\n- Impeded collateral flows may have important consequences for monetary policy transmission, for short term money market functioning, and for market liquidity.\n- This paper analyzes securities-lending, derivatives, and prime-brokerage markets as suppliers of collateral, in contrast to literature focused mainly on the repo market.\n- The paper highlights the incentives created by new regulations for different suppliers of collateral.\n- The paper argues that central banks should be mindful of the effect of their actions on the ability of markets to intermediate collateral."
    },
    {
      "heading": "Analysis and scope",
      "content": "- Focus on collateral reuse across market segments beyond the repo market: securities-lending, derivatives, and prime brokerage.\n- Emphasis on interactions between private sector bank balance sheet constraints and collateral movements.\n- Attention to implications for monetary policy transmission, short term money market functioning, and market liquidity.\n- Consideration of incentives created by new regulations for different collateral suppliers."
    },
    {
      "heading": "Key findings and themes",
      "content": "- Marketable collateral requires balance sheet space to be transferred and reused within the financial system.\n- New regulations that constrain bank balance sheets can impede collateral flows.\n- Impeded collateral flows can affect:\n  - Monetary policy transmission\n  - Short term money market functioning\n  - Market liquidity\n- Suppliers of collateral studied include:\n  - Securities-lending markets\n  - Derivatives markets (OTC derivatives, OTC derivatives market)\n  - Prime-brokerage markets\n- The paper contrasts these suppliers with the traditional focus on the repo market."
    },
    {
      "heading": "Policy recommendations and implications",
      "content": "- Central banks should be mindful of the effect of their actions on the ability of markets to intermediate collateral.\n- Regulatory design should consider incentives for different suppliers of collateral created by balance sheet constraints.\n\n---\n\n Content in this bundle\n\n- Collateral Reuse and Balance Sheet Space , WP/17/113, May 2017\n  - Collateral Reuse and Balance Sheet Space , WP/17/113, May 2017 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Collateral Reuse and Balance Sheet Space , WP/17/113, May 2017 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2017/05/08/collateral-reuse-and-balance-sheet-space-44892"
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    "[Markdown version](/en/publications/wp/issues/2017/05/08/collateral-reuse-and-balance-sheet-space-44892/index.md)",
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    "Authors: Manmohan Singh",
    "Published: May 8, 2017",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781475599343.001",
    "Transactions on wholesale capital markets are often secured by marketable collateral.",
    "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.",
    "Impeded collateral flows may have important consequences for monetary policy transmission, for short term money market functioning, and for market liquidity.",
    "This paper analyzes securities-lending, derivatives, and prime-brokerage markets as suppliers of collateral, in contrast to literature focused mainly on the repo market.",
    "The paper highlights the incentives created by new regulations for different suppliers of collateral.",
    "The paper argues that central banks should be mindful of the effect of their actions on the ability of markets to intermediate collateral.",
    "Focus on collateral reuse across market segments beyond the repo market: securities-lending, derivatives, and prime brokerage.",
    "Emphasis on interactions between private sector bank balance sheet constraints and collateral movements.",
    "Attention to implications for monetary policy transmission, short term money market functioning, and market liquidity.",
    "Consideration of incentives created by new regulations for different collateral suppliers.",
    "Marketable collateral requires balance sheet space to be transferred and reused within the financial system.",
    "New regulations that constrain bank balance sheets can impede collateral flows.",
    "Impeded collateral flows can affect:",
    "Suppliers of collateral studied include:",
    "The paper contrasts these suppliers with the traditional focus on the repo market.",
    "Central banks should be mindful of the effect of their actions on the ability of markets to intermediate collateral.",
    "Regulatory design should consider incentives for different suppliers of collateral created by balance sheet constraints.",
    "**Collateral Reuse and Balance Sheet Space , WP/17/113, May 2017**"
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