Collateral re-use plays an important role in the functioning of financial markets: it increases the availability of collateral, and consequently reduces transaction and liquidity/funding costs for many market participants, since a given pool of collateral assets can be re-used to support more than one transaction. At the same time, however, it may also present risks to the financial system, for instance by potentially increasing interconnectedness between market participants, and contributing to a build-up of excessive leverage of individual entities and in the financial system as a whole. It is therefore important for authorities to improve their understanding of collateral re-use practices and the potential impact of such collateral re-use on financial stability.
This report considers possible measures of non-cash collateral re-use, and the related data elements, that could potentially be included in the FSB’s global securities financing data standards. The report is intended to provide a starting point for discussions with market participants and researchers concerning the derivation of a meaningful measure(s) of collateral re-use to be used to evaluate global trends and to assess risks to financial stability.
The FSB welcomes comments and responses to the questions posed in this report by 22 April 2016. All comments will be published on the FSB website unless a commenter specifically requests confidential treatment.