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The post-crisis world of collateral and international liquidity. A central banker's perspective

Listed author(s):
  • Jeannette Capel

International liquidity and collateral management poses a challenge to banks as it needs to adapt to ever-changing circumstances. These circumstances are now in a state of flux because of the financial crisis. Financial market behaviour has changed, the importance of high-quality collateral has increased, new liquidity standards have been designed and central counterparties will assume a greater role in the clearing of over-the-counter derivatives. There is no doubt that these trends will have a profound impact on banks' liquidity and collateral management. This paper examines whether and how infrastructural change or central banks' arrangements can help banks to accommodate these trends. If during a crisis banks have the possibility to promptly transfer securities or cash from one country to another, they may be able to solve an imminent local liquidity problem by using the excess cash or securities that they have elsewhere. Such solutions seem more urgently required now than in the past, because current trends signal a higher need for collateral (so that banks want to use their high-quality assets more efficiently). Moreover, new fast communication technologies require banks to solve local liquidity issues before rumours spread. This paper brings forward some possible solutions and forms a central banker's view on them.

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Paper provided by Netherlands Central Bank, Research Department in its series DNB Occasional Studies with number 903.

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Date of creation: Jul 2011
Handle: RePEc:dnb:dnbocs:903
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