August 30, 2013
Sir Brooke Master and Tracy Alloway write about how the Financial Stability Board is focusing on securities lending, like the “repo” market. “Shadow banks face fresh limits to trading” August 30.
The FSB wants to impose: “a minimum .05 percent haircut for corporate debt securities with maturity of less than a year – so a $100 security could be used to raise $99.50. Equities and securitizations made up of debt with durations of five years and longer would be hit by a 4 percent haircut” allowing consequentially these latter only to be able to raise $96 for each $100,
Here one of the great distorters goes at it again. Do they not understand that by differentiating between short and long term they are distorting how the markets will allocate financial resources.
Come on FSB, in general terms of stability, what is wrong with long term debt? In terms of needed liquidity... does not long term debt need that perhaps even more than short term debt?
And I sure hope that Mark Carney, the Bank of England governor, and the FSB chairman, was joking when he called the proposal “an essential first step towards… transforming shadow banking into market-based financing” If not… “Houston we’ve got a problem”