Collateral is one of the building blocks on which the financial markets are constructed. Used for a number of purposes--including trading with central counterparties (CCPs), secured funding with market counterparties and central banks, OTC derivatives margining and settlement--the role of effective collateral management in monetizing assets has never been more important.

This paper focuses on how changes in financial plumbing of the markets may impact the monetary policy options as central banks contemplate lift off from zero lower bound (ZLB). Under the proposed regulations, banks will face leverage ratio constraints. As a result of quantitative easing (QE), banks want balance sheet “space” for financial intermediation/ non-depository activities. At the same time, regulatory changes are boosting demand for high quality liquid assets. The paper also discusses the role of repo markets and the importance of collateral velocity and the need to avoid wedges between repo and monetary policy rates when leaving ZLB.

The financial crisis has led to a far-reaching redesign of the European regulatory and supervisory framework. Following the commitments made in the context of the G-20, but also reacting to internal shortcomings, the EU engaged in a massive program to re-regulate financial markets. The EU furthermore redesigned the structure for supervisory cooperation, initially through the European Supervisory Authorities, and later in its ambition to form the Banking Union. In The Great Financial Plumbing, Karel Lannoo systematically assesses the new regulatory and supervisory framework. The book’s structure follows the big questions on the agenda: 1) What is Banking Union? 2) How have the concerns of the G-20 been addressed by the EU (oversight of credit-rating agencies, better capital for banks, the re-regulation of securities and derivatives markets, asset management, depositor protection and bank resolution)? 3) How were uniquely EU rules on state aid applied to the banking sector? This book is designed to give professionals, policy-makers and students a better understanding of the new regulatory framework and insights into the policy context that has led to the new rules governing financial markets in Europe.

Large banks and dealers use and reuse collateral pledged by nonbanks, which helps lubricate the global financial system. The supply of collateral arises from specific investment strategies in the asset management complex, with the primary providers being hedge funds, pension funds, insurers, official sector accounts, money markets and others. Post-Lehman, there has been a significant decline in the source collateral for the large dealers that specialize in intermediating pledgeable collateral. Since collateral can be reused, the overall effect (i.e., reduced ?source' of collateral times the velocity of collateral) may have been a $4-5 trillion reduction in collateral. This decline in financial lubrication likely has impact on the conduct of global monetary policy. And recent regulations aimed at financial stability, focusing on building equity and reducing leverage at large banks/dealers, may also reduce financial lubrication in the nonbank/bank nexus.

This book provides a framework for understanding the economics that drive markets, enabling investment professionals to understand the reality of markets and models, and to ‘be where the profits are’. Economics is about the allocation of resources, so it is at the heart of markets. And yet to many, economics is a field that feels far removed from the realities of what they see trading. Common sense, some entrepreneurial intuition and a decent dose of luck might seem like the only tools one needs to navigate a profitable course, especially when approaching a new financial market. This is, however, a weak framework. It is one where inconsistencies can thrive, cancelling out the rewards of erstwhile successful views or leaving no protection when risks crystallize. Of course, luck is always welcome, but there is no accounting for it. Relying on luck for returns is to make those returns completely un-replicable and thus unstable – a recipe for an unintentionally short relationship with real markets. A robust framework is needed instead. Split into three parts, Real Market Economics first builds the core framework of economic concepts, starting with real levels of activity before turning to growth in it and then prices, ending with the dynamics of business cycles. Part two adds on the stabilizing crossbeams, including the new macroprudential policies next to the more conventional monetary and fiscal ones. It then addresses how we might watch and anticipate policy changes. Finally, part three liberally coats the framework with financial markets, thereby making the completed framework's robust structure truly useful for investing in real markets.

How the U.S. Federal Reserve began actively intervening in markets Walter Bagehot's Lombard Street, published in 1873 in the wake of a devastating London bank collapse, explained in clear and straightforward terms why central banks must serve as the lender of last resort to ensure liquidity in a faltering credit system. Bagehot's book set down the principles that helped define the role of modern central banks, particularly in times of crisis—but the recent global financial meltdown has posed unforeseen challenges. The New Lombard Street lays out the innovative principles needed to address the instability of today's markets and to rebuild our financial system. Revealing how we arrived at the current crisis, Perry Mehrling traces the evolution of ideas and institutions in the American banking system since the establishment of the Federal Reserve in 1913. He explains how the Fed took classic central banking wisdom from Britain and Europe and adapted it to America's unique and considerably more volatile financial conditions. Mehrling demonstrates how the Fed increasingly found itself serving as the dealer of last resort to ensure the liquidity of securities markets—most dramatically amid the recent financial crisis. Now, as fallout from the crisis forces the Fed to adapt in unprecedented ways, new principles are needed to guide it. In The New Lombard Street, Mehrling persuasively argues for a return to the classic central bankers' "money view," which looks to the money market to assess risk and restore faith in our financial system.