Overall Collateral Creeps Up: 6.2 Trillion

Submitted by: Colin Lokey
      In the third installment of a series of recent articles on banks and the repo market, I channeled my inner Matt King to explain how, thanks to the magic of repo accounting, banks can effectively disappear hundreds of billions of dollars in repledged collateral. This is possible due to the fact that 'borrowed versus pledged' (or securities for securities) repos are not required to feature on the balance sheet. Instead, the sum total of these transactions gets buried in the footnotes. The following table illustrates this idea quite nicely. It shows collateral held by hedge funds and by non-hedge funds, the 'chain' or reuse multiplier and the resulting total which is the overall amount of collateral floating around in the system. Note that the sum total rose from 2010 to 2011. How long until we are back at $10 trillion again?

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