The decline in cash being used to finance equity lending transactions in the US market will lead to it only being used to finance specials, according to an Anthony Toscano, managing director, head of US trading, Deutsche Bank.

“The cash portion will eventually be nothing but specials,” said Toscano, looking to the long term, and also predicted the non-cash portion will increasingly be made up of equities.

“As balance sheets shrink, the availability of corporate bonds will shrink and become less and less of a factor in the non-cash collateral portion. HQLA will be needed everywhere within an organisation, so that type of collateral may also disappear.

“It’s a call to arms for people considering taking non-cash collateral – equities is something that has to be looked at very carefully. It’s not necessarily a bad thing.”

Cash collateral is on a steep downward trajectory. It was once used for 75% of loans by volume, had fallen to 60% in 2013, now accounts for significantly less than half and is continuing to drop, according to ASTEC Analytics data.

This is due to the preferences and requirements on borrowers, said D’Arcy,senior vice president SVP at the data and analytics provider. “We are seeing a continued decrease in fixed income volume compared to equities – it’s now down about 40-45% and its continuing to contract.”

Toscano added: “Those clients with the most collateral flexibility have the ability to place some of those assets that are in great demand.”