In a article published today on Bloomberg’s wire for banks, Finadium was solidly misrepresented on our thinking about Collateralized Commercial Paper. According to the headline, “Collateralized CP Market Exploits Basel III Loopholes: Finadium.” That’s not what we said, it is not correct and we want to set the record straight.
Earlier this week we published “Collateralized Commercial Paper: Regulatory Arbitrage or Elegant Solution?” The reality is that banks are creating term funding structures that comply with Basel III. Is it exploitation? No, its working out legal funding structures. Here’s what we said in the paper :
“The answer to the question posed by the title of this paper, whether Collateralized Commercial Paper is a regulatory arbitrage or elegant solution, is “yes” to both. CCP is a solution to two problems: banks need to extend their funding profile for LCR and money market funds want repo exposure beyond seven day maturities. It is a classic example of financial innovation. By the same token, it is also a good example of what has become known, pejoratively, as “regulatory arbitrage.” In this case, banks pushed to extend maturities are in direct conflict with investors who want rated, secured products that fit their short- term investment buckets.”
Collateralized Commercial Paper solves a problem for banks and for money market funds, each driven by their own set of regulations. Does it need to be watched carefully? Absolutely. But we think it is just wrong to characterize this as an exploitation or a circumvention of the rules. We don’t see it that way and did not authorize this characterization.
We’ve had great relations with Bloomberg over the years and are sorry that our report was slanted with such a misperception of our intention.