26 September 2017
Reporter: Jenna Lomax

Shadow banking will not be banned, confirms IMF

There can be many shades of grey between the riskier elements of so-called ‘shadow banking’, though it can serve useful economic functions, according to Tobias Adrian at the International Monetary Fund.

At a recent conference speech in Helsinki, Adrian suggested that erasing grey areas in shadow banking could be to give issuers new outlets for capital raising and lenders more avenues for portfolio diversification.

Among his five points of concern were the involvement of too many entities.

Adrian said: “Transformations are often performed along a chain of specialised and interconnected intermediaries and can thereby involve the balance sheets of many entities.”

Another concern was the the reuse of collateral and how one common drawback is that frequently reused collateral can give rise to heightened interconnectedness.

Adrian also discussed how a presumption of sponsor support is a risk of shadow banking that can cause contingent liabilities for the sponsor, often resulting in reputational damage if investor return expectations are not met.

Other shadow banking deals that “can have margins that are so low they cannot absorb the full cost a backstop by themselves”, were also highlighted as problem areas.

Adrian stressed that the IMF, along with the FSB and other regulatory bodies had no desire to shut down the alternative financing industry but that some aspects of the market’s risk features must be managed.

In conclusion, Adrian, said that the main obligation of the IMF is to “try to understand if there are motivations for creating these particular features that need to be taken into account by policy makers and market participants”.

More news
The latest news from Securities Lending Times
Join Our Newsletter

Sign up today and never
miss the latest news or an issue again

Subscribe now
Margin rules depress derivative contract terms, survey finds
19 October 2017 | Brussels | Reporter: Jenna Lomax
Respondents to the commission’s quarterly survey on EU securities financing market liquidity cited the implementation of European Market Infrastructure Regulation (EMIR) margin requirements for non-cleared OTC derivative contracts as the main driv
AAOI and Euronav top FIS hot stocks lists
18 October 2017 | London | Reporter: Jenna Lomax
The Belgium-based operator of crude oil tankers and storage facilities, has been a regular feature on the list in the last month
LCH migrates to new Swiss reference rate
18 October 2017 | Zurich | Reporter: Jenna Lomax
Basler Kantonalbank, Credit Suisse and Zürcher Kantonalbank are due to be among the first financial services to clear using the new rate from December 2017
Broadridge completes blockchain bilateral repo pilot
18 October 2017 | New York | Reporter: Drew Nicol
The pilot, conducted in partnership with Natixis and Societe Generale, utilises distributed ledger technology in order to make complex processes “more secure, transparent and efficient”
Repo steps back from the brink
18 October 2017 | London | Reporter: Drew Nicol
The European repo market may be recovering from the severe lack of liquidity experienced at year end 2016, according the International Capital Market Association
Tradeweb launches first electronic swaption trade on TW SEF
17 October 2017 | New York | Reporter: Jenna Lomax
The trade, which was executed by asset management firm, Garda Capital, and processed through MarketWire, officially marked the launch of swaptions trading on the TW SEF
BlackRock sees lending revenue growth
17 October 2017 | London | Reporter: Drew Nicol
BlackRock saw its securities lending revenue hit $150 million in Q3, compared to $142 during the same period in 2016