LONDON and NEW YORK,
Oct. 11, 2016 /PRNewswire/ --
Sovereign institutions are considering expanding their commitment
to securities lending to increase returns and to help alleviate
what they perceive as a threat to liquidity in the financial
markets, according to a survey from BNY Mellon and the Official
Monetary and Financial Institutions Forum (OMFIF).
The findings were reported in Mastering Flows, Strengthening
Markets: How sovereign institutions can enhance global
liquidity, which was based on a survey by BNY Mellon and OMFIF
of two dozen sovereign institutions with combined assets under
management greater than $4.7
trillion.
"Global liquidity has been strained since the financial crisis,
driven by market disruption, regulation and policy action," said
Hani Kablawi, BNY Mellon's Head of Investment Services for
Europe, the Middle East and Africa (EMEA). "Besides seeing this as an
opportunity to grow returns and reduce costs, sovereigns see
themselves as having the ability to mitigate some of the threat to
global liquidity that market participants are facing."
Seventy-five percent of the respondents indicated they are
willing to allocate 10 to 15 percent of their balance sheets for
securities lending activities, with some respondents reporting they
are considering using 60 percent of their assets.
Seventy percent of the respondents said they expect an
additional return of five to eight basis points from these
activities.
"Increasing sovereign fund participation in securities lending
activities would benefit the financial markets by enhancing the
liquidity in a wide range of assets. Doing so could compensate
somewhat for the reduction in market-making activities by banks and
broker-dealers," said Brian Ruane,
BNY Mellon executive vice president and chief executive officer of
the company's Broker-Dealer Services business. Ruane went on to say
that traditional suppliers of liquidity have reduced their
activities as a result of increased regulations and central bank
policies.
The report notes that regulations such as Basel III implemented
after the financial crisis have raised the cost of balance-sheet
intensive activities such as securities lending for banks and
dealers, leading to greater risk aversion. It also points to
actions taken by central banks that have contributed to lower
liquidity such as highly accommodative monetary policy, low
interest rates and asset purchase programs.
Ruane said, "The bond buying programs have removed just the type
of safe assets that are in high demand, while the demand for these
assets has increased significantly. Even though liquidity appears
to be sufficient today, that could change if central banks become
more restrictive. We have already seen the sensitivity of markets
to indications that the U.S. Federal Reserve might tighten monetary
policy."
Sovereigns seeking to increase their capital markets roles need
to become more connected with key market participants such as
custody banks, central clearing counterparties, and tri-party repo
providers, according to the report. The report notes that such
actions will help the sovereigns overcome challenges regarding
counterparty risk, credit risk, collateral risk and cash collateral
reinvestment.
To view the full report, Mastering Flows, Strengthening
Markets: How sovereign institutions can enhance global
liquidity, please click here
Notes to Editors:
BNY Mellon Broker-Dealer Services clears and settles equity and
fixed income transactions in over 100 markets and is an industry
leader in transactions cleared through the Federal Reserve Bank of
New York.
BNY Mellon's Asset Servicing business supports institutional
investors in today's fast-evolving markets, safeguarding assets and
enhancing the management and administration of client investments
through services that process, monitor and measure data from around
the world. We leverage our global footprint and local expertise to
deliver insight and solutions across every stage of the investment
lifecycle.
BNY Mellon is a global investments company dedicated to helping
its clients manage and service their financial assets throughout
the investment lifecycle. Whether providing financial services for
institutions, corporations or individual investors, BNY Mellon
delivers informed investment management and investment services in
35 countries and more than 100 markets. As of June 30, 2016, BNY Mellon had $29.5 trillion in assets under custody and/or
administration, and $1.7 trillion in
assets under management. BNY Mellon can act as a single point of
contact for clients looking to create, trade, hold, manage,
service, distribute or restructure investments. BNY Mellon is the
corporate brand of The Bank of New York Mellon Corporation (NYSE:
BK). Additional information is available on www.bnymellon.com.
Follow us on Twitter @BNYMellon or visit our newsroom at
www.bnymellon.com/newsroom for the latest company news.
This press release is
issued by The Bank of New York Mellon to members of the financial
press and media. All information and figures source BNY Mellon
unless otherwise stated as at June 30,
2016. The Bank of New York Mellon, London Branch, registered in England and Wales with FC005522 and BR000818. Branch
office: One Canada Square,
London E14 5AL. The Bank of New
York Mellon is supervised and regulated by the New York State Department of Financial
Services and the Federal Reserve and authorised by the Prudential
Regulation Authority. The Bank of New York Mellon London branch is
subject to regulation by the Financial Conduct Authority and
limited regulation by the Prudential Regulation Authority. Details
about the extent of our regulation by the Prudential Regulation
Authority are available from us on request.
Contact:
Malcolm Borthwick
+44 207 163 4109
malcolm.borthwick@bnymellon.com
Mike
Dunn
+1 732 667
2678
mike.g.dunn@bnymellon.com
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SOURCE BNY Mellon