Back in May, with the release of the quarterly TBAC presentation, we penned "Desperately Seeking $11.2 Trillion In Collateral, Or How "Modern Money" Really Works [7]" in which we described in detail Wall Street's lament that as a result of upcoming changes and regulations of the shadow market, that there may be a dramatic shortage in collateral over the next several years, which in addition to other factors, may hit over $10 trillion. Well, we can scratch the collateral concerns off.
- G20 TASK FORCE SAYS NEW SHADOW BANKING RULES EXPECTED TO BE IN PLACE BY 2015
- WON'T IMPLEMENT GLOBAL MINIMUM 'HAIRCUT' ON REPOS, SECURITIES LENDING UNTIL MARKET CONDITIONS RIGHT
And since market conditions will never be "right", it means the incipient attempt to regulate shadow banking is now over, and that there will be copious collateral, at least until such time as there is once again a run on the shadow banking system (the whole reason for this minimum repo haircut in the first place) and Albert Edwards' price targets are promptly hit.
More from Reuters [8]:
The $60 trillion "shadow banking" sector has been given until 2015 to comply fully with its first set of global rules after an international regulatory task force unveiled plans to curb risk without strangling economic recovery.
Leaders of the group of 20 economies (G20) meet in Russia [9] next week to endorse the rules written by their Financial Stability Board (FSB), setting out requirements for the sector and how it must be supervised. Checks on compliance will start in two years' time.
Shadow banking takes in a variety of financial intermediaries and remains a source of systemic risk for taxpayers after the 2007-09 financial crisis revealed "fault lines" that resulted in mainstream lenders needing public bailouts.
The reforms include supervisors collecting detailed data on the different parts of the sector to identify the broader risks.
National regulators must also be equipped with a set of tools [10] to allow measures such as the imposition of capital and liquidity requirements or temporary limits on how much cash clients can pull out to avoid the destabilizing "runs" on money market funds seen during the crisis in the United States.
...
Industry players including BlackRock and the International Securities Lending Association have said that minimum haircuts - which could be set at anything between 0.5 percent and 7.5 percent - could disrupt markets at a time when funding is needed to put sluggish economic recovery into a higher gear.
The warning has been heeded by the FSB. To soothe concerns the rule has been put out to consultation and it won't be finalized until next year.
Actual implementation won't start until market conditions are right and authorities and industry have enough time to adjust their systems, the FSB said.
Said otherwise, Wall Street looked at the shadow banking abyss, and promptly ran away when the abyss looked back.