Central Bank

Every June, the Bank for International Settlements (‘BIS’) publishes one of the most influential texts for finance, its annual report. It covers the bank’s own activities, to be sure; but critically for all other actors, it sets forth the content and direction of high-level, central bank thinking on their plans.

This year, two elements were pre-published, which is unusual. This may indicate a particular need felt to inform the market on both progress and planning for macroprudential regulation, mainly of banks, but not only; and to comment also on the crypto-currencies vogue, and the problems arising from them – not least environmental given the need for enormous computing power required of distributed ledgers.

A race to the bottom in collateral terminology refers to the potential for a downward spiral to occur in the acceptable quality of collateral to be posted at CCPs (central counterparty clearinghouses). Individual eligibility criteria at each CCP, which are operating as competitive, for profit entities, added to an anticipated collateral shortfall in the market, is resulting in very real fears of a race to the bottom taking place.

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