The Financial Stability Board has been considering the possible harmonization of rules relating to rehypothecation of client assets in securities financing transactions (such as securities loans, repo and margin loans) for several years. On January 25, 2017, it released a report entitled Transforming Shadow Banking into Resilient Market-based Finance, which summarizes the findings of its Rehypothecation and Re-use Experts Group.
Regulatory Approaches to Shadow Banking
Those of you who want to know more about how this aspect of so-called “shadow banking” works will find the new report very informative. Specifically, it explains:
- What rehypothecation is;
- Why it is important to the efficient functioning of lending markets;
- What systemic risks it poses;
- How those risks are currently addressed by regulation and market practice; and
- The possibilities for harmonizing regulatory approaches.