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opinion gathering process, involving assessing the ongo- For the non-cash collateral held in Europe, we have seen
ing enforceability of our master agreements in over 65 for some time now how this has both developed and Fig 19: European Securities Lending Collateral Held in European Tri-party
jurisdictions globally. responds to changes in the underlying cash markets.
As at the end of December 2019, there was circa €1.6
The global collateral footprint for the final six months trillion of securities held in tri-party in Europe. This was
of the year (see Fig 18) highlights the key role played by broadly unchanged from six months earlier, although
non-cash collateral. we did observe some interesting shifts in the balance
between the use of equities and government bonds as
In the final weeks of the period, there was clear evidence collateral (see Fig 19).
of borrowers reducing cash collateralised balances ahead
of the year end. Although, as banks and other pruden- As at the end of December, equities used as collateral Equities 45%
tially regulated institutions move to either daily average was reported at 45%, a marginal two percentage point Corporate Bonds 10%
or more regular periodical balance sheet reporting, year increase from six months earlier. The reasons behind
end compliance seems less of an issue. this shift are resonant with other changes and behavior Government Bonds 44%
across the equity world. In particular, increasing asset Other 1%
Also, we know that borrowers or banks who use the lend- valuations in 2019 will have impacted equity collateral
ing markets to secure HQLA assets for LCR purposes, pools thereby increasing some of their value. Not sur- Source: BNY Mellon Tri-Party, Clearstream, Euroclear, JP Morgan Tri-Party
normally prioritise these trades over key reporting dates prisingly therefore, borrowers appeared to have chosen
as part of their bank-wide balance sheet management to reduce the level of government bonds being used as of government bonds held as collateral by domicile of bonds as collateral may be a reflection of the previously
activities. As most of these term transactions are normally collateral, the percentage decreasing from 46 to 44 of all issuer (see Fig 20), as expected bonds from European discussed widening of the US Dollar/Japanese Yen basis
against equity collateral, we tend to see a level of rigidity non-cash collateral. issuers dominate the collateral pool, representing 49% spread, which reduced the level of JGB related trades in
around non-cash collateral even around key reporting of all government bonds held as collateral. the final quarter of the year.
dates. This pattern was seen particularly in Europe, as As we look more closely into how government bonds are
banks built up on-loan positions in core European gov- being used as collateral, we have observed again the clear This however is six full percentage points higher than the This effect can be seen in the reduction of Asian govern-
ernment bonds in the final quarter. Most if not all of these relationship with other elements of the global FX and reported number as at the end of June 2019. The sudden ment bonds in the collateral pools from 37% to 35% over
trades were against non-cash collateral. short-term money markets. As we look at the dispersal apparent increase in the use of European government the six month period.

Fig 18: Global Securities On-Loan - Cash Versus Non-Cash Fig 20: Government Bond Collateral Held in Tri-party by Domicile of Issuers

€800B €1.5T

On-Loan Balance vs Cash On-Loan Balance vs Non-Cash Europe 54%

Asia 35%

North America 10%
€600B €1.3T
Jul 2019 Aug 2019 Sep 2019 Oct 2019 Nov 2019 Dec 2019 Other <1%
Source: IHS MArkit Source: BNY Mellon Tri-Party, Clearstream, Euroclear, JP Morgan Tri-Party

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