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Regulators’ boost for securities lending has risky implications 

December 1, 2015

Patrick Jenkins, Financial Times

 
December is traditionally a time of window dressing. Shops go to extravagant lengths to display their wares. And finance directors consider how best to prettify their year-end numbers. In banking, that snapshot tends to be the basis for capital calculations and stress tests — piling on an extra incentive to make the books look good.
 
That premise is worth keeping in mind when considering the booming business of securities lending, the practice among financial institutions of swapping shares, bonds and cash with one another. What are they trying to hide?
 
Securities lending, up by about 15 per cent this year and now a €1.8tn market, is probably best known as a proxy for hedge fund aggression because the short selling of equities relies on trading borrowed stock. (Sure enough, shorting, particularly in Asia and the US, has been a big driver of the equity lending business of late.) Read more
 
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