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The Effective Supply of Collateral in Australia

Author

Listed:
  • Belinda Cheung

    (Reserve Bank of Australia)

  • Mark Manning

    (Reserve Bank of Australia)

  • Angus Moore

    (Reserve Bank of Australia)

Abstract

High-quality assets play an important role as collateral for a wide range of transactions and activities in wholesale financial markets. Regulatory changes since the global financial crisis are increasing the demand for high-quality assets, thereby raising concerns about possible collateral shortages. This article attempts to quantify the ‘effective’ supply of collateral assets in Australia by using a measure of supply that adjusts outstanding issuance for two important features of the collateral market. One feature is that a large proportion of Australian high-quality assets is held by long-term investors that do not make these assets available for sale, loan or use in repurchase agreements. A second feature is the ability to re-use collateral assets, thereby allowing a single piece of collateral to meet multiple demands. Using a new survey that adjusts for these features, the current effective supply of Australian government debt for collateral purposes is estimated to be around $128 billion, comprising around $80 billion of active supply that is re-used on average 1.6 times. This amount would appear to be sufficient to support current demand for collateral.

Suggested Citation

  • Belinda Cheung & Mark Manning & Angus Moore, 2014. "The Effective Supply of Collateral in Australia," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 53-66, September.
    • Handle: RePEc:rba:rbabul:sep2014-07
    as

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    File URL: https://www.rba.gov.au/publications/bulletin/2014/sep/pdf/bu-0914-7.pdf
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    References listed on IDEAS

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    1. Daniel Heller & Nicholas Vause, 2012. "Collateral requirements for mandatory central clearing of over-the-counter derivatives," BIS Working Papers 373, Bank for International Settlements.
    2. Duffie, Darrell & Scheicher, Martin & Vuillemey, Guillaume, 2015. "Central clearing and collateral demand," Journal of Financial Economics, Elsevier, vol. 116(2), pages 237-256.
    3. Alexandra Heath & Mark Manning, 2012. "Financial Regulation and Australian Dollar Liquid Assets," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 43-52, September.
    4. Sidanius, Che & Zikes, Filip, 2012. "Financial Stability Paper No 18: OTC derivatives reform and collateral demand impact," Bank of England Financial Stability Papers 18, Bank of England.
    5. Bank for International Settlements, 2013. "Asset encumbrance, financial reform and the demand for collateral assets," CGFS Papers, Bank for International Settlements, number 49, december.
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    Cited by:

    1. Heath, Alexandra & Kelly, Gerard & Manning, Mark & Markose, Sheri & Shaghaghi, Ali Rais, 2016. "CCPs and network stability in OTC derivatives markets," Journal of Financial Stability, Elsevier, vol. 27(C), pages 217-233.
    2. Baranova, Yuliya & Liu, Zijun & Noss, Joseph, 2016. "The role of collateral in supporting liquidity," Bank of England working papers 609, Bank of England.
    3. Jonathan Carroll & Ashwin Clarke, 2014. "The Equity Securities Lending Market," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 31-42, December.
    4. Chris Becker & Ashley Fang & Jin Cong Wang, 2016. "Developments in the Australian Repo Market," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 41-46, September.
    5. Justus Inhoffen & Iman van Lelyveld, 2023. "Safe Asset Scarcity and Re-use in the European Repo Market," Working Papers 787, DNB.
    6. Justus Inhoffen & Iman van Lelyveld, 2023. "Safe Asset Scarcity and Re-use in the European Repo Market," Discussion Papers of DIW Berlin 2050, DIW Berlin, German Institute for Economic Research.
    7. Mr. Manmohan Singh & Rohit Goel, 2019. "Pledged Collateral Market's Role in Transmission to Short-Term Market Rates," IMF Working Papers 2019/106, International Monetary Fund.

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