Illya Gerasymchuk
Entrepreneur / Engineer
the higher use of lower quality collateral has pro-cyclical effects if the price of collateral falls during economic downturn - you’ll get a lot of margin calls & insolvencies. this will further put pressure on short-term funding mechanisms, which already lack HQ collateral
US Treasuries are by far the most popular collateral type in secured short-term funding markets (e.g. the repo market) outstanding volume of these markets is larger than M2 notice the increase in usage of less safe assets as a collateral not enough UST for its demand ⬇️
