Saturday, December 10, 2011

The IMF on the "Sizeable Role of Rehypothecation in the Shadow Banking System

A July 2010 Working Paper by the IMF titled The Sizeable Role of Rehypothecation in the Shadow Banking System is a MUST READ for those wishing to know just how deep the rehypothecation rabbit hole runs in the global financial system.
It appears that the rehypothecation issue is even worse in the UK than in the US:

A defined set of customer protection rules for rehypothecated assets exists in the UnitedStates, but not in the United Kingdom. In the United Kingdom, an unlimited amount of the customer’s assets can be rehypothecated and there are no customer protection rules. By contrast, in the United States, Rule 15c3–3 limits a broker-dealer from using its customer’ssecurities to finance its proprietary activities. Under Regulation T, the broker-dealer may use/rehypothecate an amount up to 140 percent of the customer’s debit balance.

Re Hypo the Cation Shadow Banking