Fears for future of repo as collateral shortage grows

10 Aug 2012

A third long term refinancing operation by the ECB, which investors now think is increasingly likely, could spell disaster for the European interbank repo market, where volumes are already plunging as a result of the central bank’s previous three year liquidity injections.

Banks’ increasing hoarding of top-rated government collateral has also led to fears for central counterparties (CCPs) — regulators’ preferred model for the industry — at a time when repo finds itself firmly on watchdogs’ radars as part of the shadow banking system.

Repo trades outstanding contracted by nearly ...

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