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Cash collateral may die out for US SBL
02 February 2017
Until recently cash collateral dominated the US market – but in the future it may only be used to finance specials
The decline in cash being used to finance equity lending
transactions in the US market will lead to it only being used
to finance specials, according to an
Anthony Toscano, managing director, head of US
trading, Deutsche Bank.
"The cash portion will eventually be nothing but specials,"
said Toscano, looking to the long term, and also predicted the
non-cash portion will increasingly be made up of equities.
"As balance sheets shrink, the availability of corporate
bonds will shrink and become less and less of a factor in the
non-cash collateral portion. HQLA will be needed everywhere
within an organisation, so that type of collateral may also
"It’s a call to arms for people considering
taking non-cash collateral – equities is something
that has to be looked at very carefully. It’s not
necessarily a bad thing."
Cash collateral is on a steep downward trajectory. It was
once used for 75% of loans by volume, had fallen to 60% in
2013, now accounts for significantly less than half and is
continuing to drop, according to ASTEC Analytics data.
This is due to the preferences and requirements on
borrowers, said D’Arcy,senior vice
president SVP at the data and analytics provider. "We are
seeing a continued decrease in fixed income volume compared to
equities – it’s now down about 40-45% and
its continuing to contract."
Toscano added: "Those clients with the most collateral
flexibility have the ability to place some of those assets that
are in great demand."