ICMA European Repo Council expresses serious concern over FTT

Analysis of the proposed Financial Transaction Tax shows that affected parties such as central banks, financial intermediaries, investors and borrowers should be seriously concerned, according to an academic paper published by the ICMA European Repo Council.

Author Richard Comotto at the ICMA Centre at Reading University in the UK, points to a major effect of the FTT being to make colleteral prohibitively expensive, as well as disrupting the matching of supply and demand for collateral.

The paper questions why the European Commission is proposing to replace repo with secured loans, when the former is already performing a task well.

Godfried De Vidts, chair of the ERC said: “Every single home owner understands the value of collateral, as home loans are only available from mortgage providers against the security of bricks and mortar. Similarly, for today’s financial markets, collateral represents the raw material underpinning the G20 regulatory requirements for safer centralised and bilateral clearing, as well as the implementation of central bank monetary policy. The current FTT proposals would paralyse the movement of collateral, damaging its essential role at the heart of markets.”

The full paper can be viewed at www.icmagroup.org


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