At face value, these regulations could be expected to have contributed to bumping up demand for government bonds, thereby reinforcing the effects of the ECB’s APP. But because, as a result of our asset purchases, banks hold a large amount of central bank reserves, which count as highquality liquid assets, such regulations are unlikely to have been a key driver of increasing collateral scarcity. These reforms, however, are likely to have affected the repo market in different ways. One of them you can see on my next slide. Here I show the distribution of repo market activity for oneday tenor contracts exchanged bilaterally or via central clearing counterparties (CCPs) for German collateral. The chart shows an interesting feature, namely that the market attaches a premium to centrally cleared transactions. The reasons for this are unlikely to surprise you: the leverage ratio allows for offsetting cash proceeds to be netted off when the transactions are with the same counterparty, have the same end date, and are conducted in the same settlement system. This means that although repo transaction are not part of the 2009 Pittsburgh central clearing mandate, which covers OTC derivatives, centrally cleared transactions have a premium because they make those trades less capital intensive compared with non-nettable ones. According to MMSR data, around two-thirds of repo transactions are already cleared centrally.
The question now is how to sustain and strengthen this new simpler system. I have two answers:  First of all, keeping the spaghetti bowl untangled means global infrastructure. The deep pools of liquidity that make central clearing economical don’t correspond to national borders. Derivatives clearing is a global service. UK CCPs clear global markets for interest rates, foreign exchange, credit default swaps, and commodities. Foreign clearing members make up 63% of the clearing members at  6  Speech by Alex Brazier. How to: MACROPRU. 5 principles for macroprudential policy. 13 February 2017. 4  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  4  UK CCPs. At the end of 2020 there were £ trillion of derivative contracts between UK CCPs and EU clearing members, and £ trillion between UK CCPs and US clearing members.7  The growth of global infrastructure that spans national borders is a direct result of the reforms we put in place after 2008 – again a feature not a bug. This cross-border nature of clearing means that there must be a consistent approach for the regulation and supervision of cross-border CCPs. The Principles for Financial Market Infrastructure, issued in 2012, provide that foundation. It also means that regulators and supervisors must do something difficult and for some, radical: we need to trust each other. This trust should not be blind.