36. The other important issue I would like to flag, which is going to get accentuated by the move towards CCPs and collateral support arrangements, is the increasing collateralization of bank balance sheets. Leverage is one part of this aspect – a recent IMF paper 5 clearly brings out the risks inherent in widespread re-hypothecation of collaterals in many of the developed markets.
The other part is the impact on bank balance sheets of the pro-cyclical collateralization regimes. If a large part of the good quality collateral on banks’ books is locked up for their trading operations, what does it do to the resolvability issues in times of crisis and burden sharing?