He is expected to demand increased use of hard data from actual lending transactions.
Will lending transactions pursuant to this framework agreement be genuinely collateralized?
The central bank keeps its eye on an overnight rate called Eonia, which is calculated by taking a weighted average of all overnight unsecured lending transactions between a pool of 43 of the most active banks in the Eurozone, along with four other international banks.
All loans should be tied to specific projects or trade transactions through the use of established lending techniques and expanded reporting requirements.
He said the cheap money has compressed the bank's lending margins and spreads it makes on client transactions, as well as the returns the bank makes on cash and short-term securities.
Commercial Lending X has not only relieved banks of much of the loan underwriting and processing (cost-center) burden, they have also found creative ways to increase bank revenues by brokering denied loans to generate referral fees from other lending institutions, by finding participants to help larger loan transactions get done and by bringing banks new customers.
Then, as now, transactions were rarely collateralized and the use of disciplined lending techniques were set aside.
Transactions executed through variable prepaid forward contracts and share-lending agreements are intended to raise money but defer taxes.
Western banks should be encouraged to replace this kind of commercially unsound lending to sovereign borrowers with tightly structured, specific purpose credits in support of trade transactions and projects.
Those concerns are growing amid mounting accusations that the banks and brokerages which handle their securities transactions have been over-charging corporations and public entities for various services, including securities lending and foreign exchange conversions.
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