ABSTRACT
No discussion of banking in the new millennium is complete without reference to securities. Investment banks (formerly known as merchant banks) have always been involved in underwriting and arranging new issues of securities. With the breakdown of the traditional sectors in the financial markets, commercial banks are becoming more active in the securities markets. Even in the traditional commercial banking business of cash lending, there is an important trend towards the collateralisation of commercial exposures. For a range of reasons (including the market downturn in 1998 and the desire to achieve regulatory capital efficiencies) banks are seeking to collateralise an increasing number of their exposures, either by taking security interests in assets, or by receiving assets under repurchase agreements or other outright transfer arrangements. The best form of collateral is cash (denominated in $US). The second best form of collateral comprises securities, in particular treasury securities. Banks are therefore very significantly involved in the securities markets, not just as managers and underwriters, but also as investors and collateral takers.
