EU Central Banker Raises Liquidity and Collateral Concerns
In a June 21, 2017 address before the 26th Annual Securities Finance and Collateral Management Conference in Berlin, Deutsche Bundesbank Board Member Professor Joachim Wuermeling warned that the securities finance sector faces some unique liquidity and collateral challenges. In particular, he noted that the extraordinary measures taken by central banks to shore up liquidity in the years since the financial crisis may be distorting liquidity and affecting collateral quality in securities lending and repo markets. Measures like the Public Sector Purchase Programme (PSPP) and central bank securities lending and bi-lateral repo facilities intended to backstop liquidity in securities financing markets may, in the long run, have unexpected effects on liquidity and could have a negative effects on transaction costs and order book depth, creating “fickle” conditions for market participants.