Instruments for Secured Funding

Federico Galizia and Giovanni Gentili

At the time of writing, a paradigm shift was taking 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, market 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 repos had become the norm at longer terms;¹¹Libor is the London Interbank Offered Rate. Repos are repurchase agreements. it also concerned medium- and long-term funding, with asset-backed securities (ABSs) and covered bond issuance crowding out senior bonds to an increasing extent. There was also a predominant reliance on central bank facilities, to the point that ABSs were being issued and “retained” by the same originators to be used for central bank refinancing.

In this chapter we take stock of the aforementioned trend, covering short-term instruments, in particular the repo, and 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 of the issuer, rather than the investor. The