Repo costs rising as a result of leverage ratio

Market participants agree the cumulative effects of prudential rules and derivatives reform will hit prices and could force banks to shut some businesses

Repo costs are rising

The costs imposed on dealers by new rules such as the leverage ratio are beginning to trickle down from dealers to end-users, and have already hit repo markets, according to Pimco's global head of portfolio risk management, Bill De Leon. Repo is suffering because it is a low-margin business that involves high gross notional numbers, on which the leverage ratio weighs most heavily.

"If you look at the repo market, I think it's showing up very, very quickly there because that is a gross notional