Regulators need to rethink leverage ratio for repo markets

If balance sheet restraints prevent banks from providing repo liquidity, but asset managers are labelled ‘shadow bankers’ for peer-to-peer repo – what do regulators want? Roelof van der Struik, manager for Treasury Trading & Commodities at pension fund manager, PGGM sees a backstop to accessing central bank liquidity as one option. Andy Hill, senior director at the International Capital Market Association (ICMA) says that members’ proposals may not be acceptable – disintermediation will not work but they are hamstrung by their regulatory obligations to retain capital against their trading activity. He argues there is a case for recalibrating some of these obligations, notable the leverage ratio as part of the Basel III Capital rules.

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