Introduction

Manmohan Singh

The book provides a practical understanding of how financial collateral moves across jurisdictions. It complements the present thinking by drawing on the basic legal underpinnings of financial collateral, the sources and key players in this market, and how the size of this market is relevant from a monetary and macroeconomic perspective.

Since Lehman’s bankruptcy and the bailout of AIG, regulators have admitted several weaknesses in the financial system. The book provides persuasive economic reasoning to mull over and better understand the forthcoming changes that will straddle most of the themes in the book: a full(er) picture of leverage, dealer balance sheet constraints, large central bank balance sheets, OTC derivatives, CCP resolution and forthcoming changes in payment systems, and money aggregates. These activities are the nuts and bolts of financial plumbing, which is lubricated by money and collateral.

The book is not intended to be mathematical or analytical, but attempts to cover issues often overlooked by policymakers, academics and markets. The intuitive approach highlights that the pledged-collateral world spans many jurisdictions and so cannot be documented