Repair the leverage ratio, revive the repo market
Domestic currency government bonds and repo should be exempted, suggests former supervisor
Last March’s market crash provided a real-time stress test for the banking sector’s post-financial-crisis reforms. Mostly they passed. Bank capital ratios remained stable even though their share prices plummeted; there was no run on any major bank; some institutions which provisioned prudently have now written their provisions back into P&L.
But the strength of an individual bank is not the same as the strength of the financial system as a whole. And March’s equity price collapse flashed up
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