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Banks Ready to Use Low-Quality Collateral If It’s Cheap

One in three financial institutions would accept “low-quality, complex and opaque” collateral to back trades provided that it’s “cheap,” according to a survey from the operator of Switzerland’s exchange and clearinghouse.

More than half -- 57 percent -- of the 60 industry participants surveyed on behalf of SIX Group said that the cost of collateral was more important than its quality. About 48 percent of the respondents answered that securitizing and repackaging existing securities to create pools of collateral would increase risk, possible leading to another financial crisis. Some 43 percent said they wanted “simple, high quality, liquid and easy to value” collateral, the survey found.