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Risky repo debt at pre-crisis levels
08 February 2012
The recent rise in repos backed by distressed structured finance collateral present a potential risk, according to Fitch Ratings
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Risky debt contained in repo transactions stands at levels close to pre-crisis levels, according to ratings agency Fitch.
Repo markets, once viewed as a relatively mundane utility within the financial system, are the subject of growing public interest in 'shadow banking', as a result of the potential liquidity risk posed when repo markets are interrupted, said Fitch.
The recent rise in repos backed by distressed structured finance collateral is of particular concern, according to a new paper by Fitch, Repo Emerges from the Shadow.
Structured finance instruments – such as collateralised debt obligations (CDOs) and residential mortgage-backed securities, (RMBS) – being financed in the repo market are now at nearly 20% of total repo collateral. Within this, Alt-A and sub-prime mortgages, now...
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