Reports that Lehman relied heavily on
repo transactions in order to disguise problems with its balance sheet highlight the need for tighter restrictions on
repo's. Like commercial paper, most
repo deals are short-term in nature and therefore unsuited for the financing of longer-term assets. Funding based on
repo's, commercial paper and similar instruments should be used exclusively for the financing of assets with a matching maturity profile and capital
requirements should allow for a sufficient margin to provide for extreme events.
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