Collateral Need May Reach $6.7 Trillion for Banks, Swaps Users
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As much as $6.7 trillion in additional collateral may be needed to satisfy new bank capital rules and swaps-clearing mandates, according to securities-industry consultant Finadium LLC.
Scarcity of cost-effective assets to back swaps trades has led some market users to engage in so-called collateral transformation, in which lower-rated securities are exchanged for cash or highly rated securities, the Concord, Massachusetts-based firm specializing in securities lending and collateral management said. The extent of that transformation will depend on whether banks and money managers believe too few assets are available to cover their swaps positions, Finadium said.