Instruments for Secured Funding

Federico Galizia and Giovanni Gentili

At the time of writing, a paradigm shift had taken place for bank wholesale funding. While retail deposits continued to function very similarly to the way they did prior to the 2007–9 financial crisis, markets, central bank and regulatory action were shifting banks towards secured funding. This applied to the money markets, where the traditional Libor-based unsecured lending was concentrated in overnight transactions and repurchase agreements (repos) had become the norm at longer terms,¹¹Libor is the London Interbank Offered Rate. and also concerned medium- and long-term funding, with asset-backed securities (ABSs) and covered bond issuance complementing senior bonds, especially as the latter became vulnerable to bail-in regulations. There also continued to be significant reliance on central bank facilities, to the point where ABSs were being issued and “retained” by the same originators to be used for central bank refinancing.

In this chapter we explain the new paradigm, which covers short-term instruments (particularly the repo), medium- and long-term instruments, covered bonds and ABSs. In keeping with the aim of the book, these instruments are treated from the point of view