Bank-Driven Squeeze in Funding Markets Emerges as Stocks Rise
- Lenders are looking to counteract rise in regulatory scores
- Consequences seen in currency, swap and collateral markets
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Rising share prices are increasing year-end pressures in many corners of the funding markets as swelling equities valuations push up banks’ need for capital.
The consequences of lenders dealing with a creep higher in regulatory scores -- which requires banks to hold a larger capital buffer -- have rippled through currency borrowing markets, Federal Reserve swap lines and even European repurchase markets. The rally in equities has increased the value of banks’ stock holdings, which has likely put more upward pressure on regulatory scores -- triggering lenders to seek ways to counteract the rise.