Databases designed for specific purposes often fail when asked to solve a different problem. As an example, the securities finance databases of leading data providers such as FIS Astec, Datalend, and IHS Markit, designed more than 20 years ago for performance benchmarking, are inadequate when queried for the purpose of the loans themselves. Even regulatory databases enriched with new SFTR filings can only help supervisors monitor leverage based on end-of-day positions, and are unable to determine the propriety of the loans without mapped flow data.

Since 1980, the cash-based securities lending program has evolved to become the prevalent form of collateral management model in the United States. By 2005, U.S.-domiciled insurers, pension funds, mutual funds and corporate treasurers had securities valued at more than $1.25 trillion on loan. This evolution has not come without difficulties. In the 1990s, securities lenders found that a rising interest rate environment suddenly depressed the value of their cash collateral investments, in some cases to the point of loss when lenders were unexpectedly required to return cash deposits to borrowers.  A few lenders sustained losses that exceeded the income they had earned over the course of several years, although in several cases agent lenders absorbed the damages in order to protect their franchises.

[reprinted from 2005]