Cash Is King (Of BHC Collateral): Fed

One of the lessons of the financial crisis was that repo markets, OTC derivatives, and other asset markets caused financial institutions to be far more interconnected, and the whole system more fragile, than regulators had imagined. To get a better handle on how these effects, the Federal Reserve required bank holding companies (BHC) with more than $10 billion to start reporting their collateral arrangements in much greater detail, and now that the data has started there appears to be strong correlation between liquidity and concentration in collateral used. “Although BHCs have large exposure to banks, most of the collateral involved…