Research Summary
The report delves into the daily financial market transactions involving over $11 trillion in dollar funding, essential for global trade and commerce. It emphasizes the role of dealers, referred to as monetary plumbers, in maintaining the U.S. liquidity machine. The report also explores the rise of the “secured standard” in the aftermath of the Great Financial Crisis of 2008, leading to a decline in unsecured dollar markets. The focus shifts to secured cash loans and securities lending, forming the Secured Dollar Funding Complex (SDFC), and the intricate world of securities dealers.
Key Takeaways
Significance of Monetary Plumbers
- Essential Role: The report highlights the importance of dealers in the U.S. liquidity machine, facilitating over $11 trillion in daily transactions.
- Global Impact: The dealers’ role extends to international banks, hedge funds, and large corporations, influencing global trade and commerce.
- Historical Perspective: The report traces the evolution of dealer businesses since the post-war period, including their involvement in various dollar funding instruments.
The Rise of the Secured Standard
- Regulatory Changes: Post the Great Financial Crisis, regulations like Dodd-Frank Act, Basel Framework, and SEC’s money market reform led to the emergence of the “secured standard.”
- Decline of Unsecured Markets: The secured standard has led to the decline of unsecured dollar markets, impacting dealers and trading desks.
- Focus on Secured Funding: The report emphasizes the shift to repo and securities lending, forming the Secured Dollar Funding Complex (SDFC), as the future of financial plumbing.
Actionable Insights
- Understanding Secured Funding: Financial institutions should focus on understanding the Secured Dollar Funding Complex (SDFC) as it represents the future of financial plumbing.
- Adapting to Regulatory Changes: The emergence of the “secured standard” requires adaptation to new regulations that have shaped the current financial landscape.
- Monitoring the Role of Dealers: The intricate role of securities dealers in liquidity management necessitates careful monitoring and analysis for effective financial operations.
