Liquidity, Leverage Regs Pressure The Short-Term Lending Market

Now that post-crisis regulations surrounding capital requirements for risk-weighted assets have mostly been hammered out, rule-making is turning to leverage and liquidity. While it’s still early in the process, a declining repo market could be a sign of tighter short-term lending markets once new regulations are in full effect. “As banks increase funding durations, shrink low-return assets and re-price certain business to account for less leverage, we expect the ultimate impact to be a smaller, more expensive short-term financing market which may impact overall trading activity,” writes Goldman Sachs analyst Richard Ramsden. “The net impact to bank earnings is harder…