Developments in the global securities lending market

Quarterly Bulletin 2011 Q3
Published on 19 September 2011

By Matthew Dive of the Bank’s Payments and Infrastructure Division, Ronan Hodge and Catrin Jones of the Bank’s Financial Institutions Division and James Purchase of the Bank’s Sterling Markets Division.

Securities lending plays an important role in supporting financial markets.  For example, it can improve market liquidity, potentially reducing the cost of trading and increasing market efficiency.  But by increasing the interconnections between institutions it can pose potential risks to financial stability, which are exacerbated by a lack of transparency in the securities lending market.  Since the onset of the financial crisis, market participants have attempted to address some of these risks, and fundamental changes to market infrastructure are being discussed, such as the use of central counterparties.  New regulations under way to improve the resilience of the financial system may also impact both the risks to financial stability from securities lending and its benefits.

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