Securities Finance Times: Rethinking the Economics of Indemnification

Securities lending indemnification is mispriced, subsidised by the agent providers and not all it’s cracked up to be as a risk mitigant, according to Credit Benchmark’s co-founder Mark Faulkner. He talks to Bob Currie of Securities Finance Times about how to reset the economics of the agency lending market.

Bob Currie references Mark Faulkner’s thesis in the article:

“This divergence between the cost, the benefit and the regulatory capital cost of indemnification is unsustainable in current market conditions, he notes, and this “will hopefully provide a catalyst for change”. The report urges interested parties to work with regulators to ensure that the securities lending industry can continue to deliver its important role in providing short-side liquidity for global capital markets. Failure to change could have significant ramifications for global capital markets, it concludes.”

The full original research cited by Securities Finance Times can be accessed here.

Securities Finance Times, August 2, 2022.

View original article (external link).

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Credit Benchmark brings together internal credit risk views from over 40 leading global financial institutions. The contributions are anonymized, aggregated, and published in the form of consensus ratings and aggregate analytics to provide an independent, real-world perspective of credit risk. Risk and investment professionals at banks, insurance companies, asset managers and other financial firms use the data for insights into the unrated, monitoring and alerting within their portfolios, benchmarking, assessing and analyzing trends, and fulfilling regulatory requirements and capital.