Greek deal done: 124 pct Debt to GDP in 2020, a sigh of relief for the Euro-zone. In the mean while on 18th November FSB came out of 14 page report and,  I was reading the FSB report on shadow banking. The most important issue here is the fifth work-stream  securities lending and repo — yet the proposals seem, well, a little bland. Here are the suggestions in brief:

  1. Improving regulatory reporting
  2. Improving market transparency
  3. Improving corporate disclosures
  4. Improving reporting by fund managers to end-investors
  5. Introducing minimum standards for haircut practices
  6. Limiting risks associated with cash collateral reinvestment
  7. Addressing risks associated with re-hypothecation of client assets
  8. Strengthening collateral valuation and management practices
  9. Evaluating the establishment or wider-use of central clearing where appropriate
  10. Changing bankruptcy law treatment of repo and securities lending transactions

All good stuff, but if a money market fund requires something like capital because it is bank-like, shouldn’t there be capital requirements for all repo rather than Basel II’s safe harbour (zero capital for certain qualifying transactions)? And, if not, on what basis is liquidity risk being `traded off’ against systemic and credit risks? Just askin’.

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