Today's post will differ slightly from previous ones, as it focuses on a structural shift within the financial system - one that, perhaps unsurprisingly, has largely escaped public attention.
totally agree. I worked in Leveraged Finance through 08-09 crisis until 2014, when the European credit funds began to blossom pushing the banks out of this market thanks to very lax documentation provisions and immense leverage on offer. Now facing the downturn, the foundation begins to shake and portfolios deteriorate, which is probably the main drive we see that European banks extend loans to NBFIs like crazy in an attempt to avoid spillover. But we all know it will eventually happen anyways :)
I think that’s also why we’re increasingly seeing central banks and CCPs become more open to engaging with NBFIs. Just a few days ago, I discussed how there’s growing interest in bringing NBFIs into central clearing frameworks, even though this would still require some legal adjustments (https://goghieas.substack.com/p/nbfis-and-the-limit-of-central-clearing). We’re seeing the same trend in the United States. Policymakers have come to realize that the risks are simply too significant to ignore these actors any longer...
totally agree. I worked in Leveraged Finance through 08-09 crisis until 2014, when the European credit funds began to blossom pushing the banks out of this market thanks to very lax documentation provisions and immense leverage on offer. Now facing the downturn, the foundation begins to shake and portfolios deteriorate, which is probably the main drive we see that European banks extend loans to NBFIs like crazy in an attempt to avoid spillover. But we all know it will eventually happen anyways :)
I think that’s also why we’re increasingly seeing central banks and CCPs become more open to engaging with NBFIs. Just a few days ago, I discussed how there’s growing interest in bringing NBFIs into central clearing frameworks, even though this would still require some legal adjustments (https://goghieas.substack.com/p/nbfis-and-the-limit-of-central-clearing). We’re seeing the same trend in the United States. Policymakers have come to realize that the risks are simply too significant to ignore these actors any longer...