Bloomberg reports that JPMorgan Chase and Bank of America Corp. are
helping clients find an extra $2.6 trillion to back derivatives trades amid
signs that a shortage of quality collateral will erode efforts to safeguard the
financial system. Starting next year,
new rules designed to prevent another meltdown will force traders to post U.S.
Treasury bonds or other top-rated holdings to guarantee more of their bets. The
change takes effect as the $10.8 trillion market for Treasuries is already
stretched thin by banks rebuilding balance sheets and investors seeking safety,
leaving fewer bonds available to backstop the $648 trillion derivatives market.
The solution: At least seven banks plan to let customers
swap lower-rated securities that don’t meet standards in return for a loan of
Treasuries or similar holdings that do qualify, a process dubbed “collateral
transformation.” That’s raising concerns among investors, bank executives and academics
that measures intended to avert risk are hiding it instead....
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