FSB has published a report looking at how the securities lending and repo markets operate. The report is part of FSB's wider work on shadow banking and looks at the segments and practices in this market. The report will be followed by recommendations by the end of 2012. It identifies four interlinked segments in the market:
- securities lending;
- leveraged investment fund financing and securities borrowing;
- inter-dealer repo; and
- repo financing.
It also looks at the drivers that have contributed to the growth of the markets, and the aspects of them that may potentially be important elements of the shadow banking system. It identifies seven issues for further work:
- lack of transparency;
- procyclicality of system leverage and interconnectedness;
- other issues connected with collateral re-use;
- fire sales of collateral assets;
- agent lender practices;
- securities lending cash collateral reinvestment; and
- collateral valuation and management practices.
FSB invites comments on the report by 25 May. (Source: FSB Report: Securities Lending and Repo: Market Overview and Financial Stability Issues)