The Lehman meltdown and unravelling of unsecured contracts shocked politicians and regulators into doing something to make the financial system safer. Collateral was one of the solutions, and it is now in demand as derivatives contracts need to be collateralised and liquidity buffers need to be increased. However, this pursuit of collateral could inadvertently be creating more risk in the financial system, rather than actually reducing it.
“I am not convinced that we have enough quality collateral where it needs to be in order to keep the capital markets functioning – not just as efficiently possible, but also safer than in the past,” says Thomas Zeeb, CEO of Six Securities, a Switzerland-based post-trade services provider. “This change in capital markets funding is the paradigm shift that we as an industry have to figure out.”
