GFF Podcast
The Global Funding and Financing (GFF) podcast is Clearstream’s podcast series for the funding and financing industry, releasing monthly episodes with senior leaders in the space of secured finance covering all major topics shaping the world of collateral, securities lending, repo and OTC derivates leading up to the 2022 edition of the GFF Summit in Luxembourg. Stay connected with the GFF community across the globe and subscribe to our show. Each of the 30 minutes of lively episodes are hosted by Andrew Keith Walker, Finance and Tech Journalist and Christian Rossler, Senior VP, Securities Lending and Borrowing Products at Clearstream. Legal Information here - https://www.clearstream.com/clearstream-en/imprint-1277756
GFF Podcast
Clearstream adds central bank money settlement for uncleared triparty repo
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In our final episode of Season 3, we take an in-depth look at Clearstream's newly added central bank money (CeBM) settlement for triparty repo. Integrated with the EU’s TARGET2 real-time gross settlement platform, CeBM opens up uncleared triparty repos to a wider market of more diverse financial and non-financial counterparties. CeBM is designed to facilitate entities such as debt management offices and state treasuries that want to engage in the reduced risk of central bank money settlement, with less friction and back-office complexity for lifecycle events. As repo volumes increase and inflation, volatility and interest rates continue to be unpredictable, CeBM adds another liquidity management tool into the money markets in an industry first for Clearstream. Join James Cherry, Head of Business Development (and long-time contributor) and Christian Rossler as they break down the key issues and look ahead to the big macroeconomic issues that will shape the next year of global funding and financing.
and welcome back to the final episode of season three of the gff podcast. Hello, I'm andrew keith walker and joining me here, of course. Uh, for this very special show, I have my co-host, a man who is almost certainly a basket of high quality liquid assets ready to be traded in GC pooling, compared to my limited liquidity Bitcoin ETF. Yes, none other than the vice president of Central Bank Products for Collateral Liquidity and Lending Solutions, mr Christian Rossler. Christian, welcome back. Hi, andrew, good to be back. Well, it's good to have you back, christian, and we've got a slight change, haven't we this week, because you're not just my co-host for this show, but you're actually a guest, I am going to be interviewing you.
Speaker 2Yeah, it's a first actually, so but I mean together with James who's on the show, and I'm very happy to have James on the show.
Speaker 1Yes, indeed, joining us as well, of course, is the head of business development for Collateral Liquidity and Lending Solutions, james Cherry, who you will know not just from the fact he is always in demand as a speaker on the circuit all around the world. You'll have seen him, no doubt, at Isla and ICMA and various other places like that, as well as the GFF Summit, but of course he's an old friend of the show and has been on many times. So, yes, we'll be introducing James shortly. But before we get to that, christian, I just want to do a quick update because you've been away, haven't you? You've been in Washington DC meeting with the IMF on a very, very exciting kind of top secret project, and I'm sort of giving it all away, sorry, if you're listening. Imf, don't worry, we've read the NDA. Christian, tell us a little bit more about the work you've been developing over there in Washington.
Speaker 2Well, the annual spring meetings of the World Bank and World Bank Group, as they say and the IMF were held in Washington during April 15th to April 20th, and I was privileged enough to be there and be representing Clearstream in the delegation representing Clearstream in a delegation. Now, what was the main focus on those spring meetings was definitely the focus was on the resilience of the world economy. The IMF World Economic Outlook has been surprisingly positive. So they see and they look at the growth rate of 3.2% for 2024 and 2025. And meanwhile, the World Bank also is expanding its mission to include tackling climate finance, climate crisis and, more precisely, the IMF's Resilience and Sustainability Trust, a 50 billion fund aimed at helping economies to build resilience and to be resilient against external shocks such as climate change, and our meetings focused around that. But also we had meetings with stakeholders that came from emerging market and developing economies, central banks. So we have meetings where we articulated the Clearstream services with those central banks and, lastly, also we had topics such as the Ukraine reconstruction markets in the EU and the US.
Speaker 1To connect up with developing markets in potentially higher risk scenarios. To encourage the funding of green finance projects and sustainability link projects.
Speaker 2Yeah, it's all about channeling money from developed economies to economies that are emerging, and precisely with the focus to help them to mitigate or to adapt to climate change.
Speaker 1Okay, good. Well, that fits in very well with the theme of today's show because, of course, we've had a lot of topics that have dominated this season. We've been talking about managing liquidity, we've been talking about surging repo markets and today we're talking about the way the clear stream has developed a new service that's going to bring new market participants into the sort of, you know, rejuvenated repo markets and also help market participants deal more effectively with changing monetary policy and the the sort of slightly more volatile environment that is sort of bubbling under and potentially going to be with us for some time. So to talk about that is a man, like I said, who needs very little introduction James Cherry, who knows market infrastructures and the big picture inside out, and James, welcome back to the show. The big picture inside out and James welcome back to the show. And I promise there will be no questions about AI, no T plus one and absolutely no mention of the mandatory clearing of US treasuries within the domestic US market. Thanks, andrew, good to be back as well.
Speaker 3I was waiting for a reference. If Christian was taking HQLA, you were taking ETFs. I was wondering if I would be bucketed into some kind of sub-investment grade low quality asset.
Speaker 1You know what, If ever I met a reverse repo with a beard?
Speaker 3it's you.
Speaker 1You are basically enabling the debt management offices of the world to stock up on high quality green collateral, which, funnily enough, isn't just a nice little segue. But that's the part really of what we're going to be talking about today, isn't it? Because we're talking about the new product, cebm, or, in simple terms, the ability to settle repos in central bank money. So let's dive in there. This is your thing. Take us through this, you know, potentially very important development in the European repo landscape.
Speaker 3Yeah, we think so, and it's one of those topics that maybe doesn't get quite as much attention or doesn't come with the gloss and glamour of things like DLT and AI and some of the other buzzwords you mentioned. But we do think it's a really important thing that we've done. Essentially, what we're doing is we're adding additional optionality and flexibility and we're adapting our suite of products to suit the changing dynamics of the market. So basically, it's an evolution of what we're doing and we think it's really important for a number of reasons. So, if you think about central bank money settlement CEBM it's really best associated with the cleared markets. That's where most people think of central bank money.
Speaker 3When it comes to repo markets anyway, what is it? Well, commercial bank money settlement involves the liability, basically, of a commercial bank and credit exposure to that institution, whereas in settlement in central bank money, you are discharging your settlement obligations on the books of the central bank directly, and this can have some really positive impacts. There are sort of two main advantages really. First and foremost, central banks issue the safest, most liquid settlement asset possible. They avoid and settling in central bank money itself avoids the credit and liquidity risks associated with private money systems. So, being able to convert your settlement, if you like, into central bank money means that you get additional confidence in the private means of payment. So settling in central bank money basically limits the risk associated with wholesale financial markets activities being concentrated on single, individual nodes within the system. You fall back rather on the central bank, the thing that we all really trust, first and foremost, more than anything else, and then the other sort of second main advantage of central bank money settlement is that you well, central bank money settlement basically minimizes the risks for the financial system as a whole and provides a solid anchor, if you like, and stability for payments in general.
Speaker 3So that's what we're doing. We're adding central bank money settlement to our uncleared repo product. You've been able to settle in central bank money through the GC pooling product for a number of years, and what we're doing is we're adding an additional bow to our string, to our bow, and allowing the settlement of both central bank and commercial bank money now in the uncleared world. Now this is specifically important again. When you think of I mean you mentioned DMOs in your intro we have seen a number of large public sector institutions so state treasuries, debt management offices, specifically in the Eurozone space, re-entering or becoming more active in European repo markets, and these are exactly the type of institutions that are very, very sensitive to commercial bank risk and will benefit and appreciate the flexibility offered by what we're doing. I'll stop there.
Speaker 1Well, that's a really interesting point that you raised, of course, because there are new market participants, new entrants coming into repo, which of course is a big focus for ESMA. We know it would be remiss of us to let April pass without mentioning, of course, the new EMEA refit regulation has gone live and everyone is now sort of playing catch up with that, and a lot of that focus is on non-financial counterparties over a certain sort of threshold, which of course includes the sort of institutions you're talking about there. So we know that they've become more active and now they're being brought into the regulatory sphere. And on that front, christian, I want to come to you here because you know you are the GFF, bff, of all the central banks and sovereign wealth funds within the euro system and beyond, of course. But take us through a little bit of the background here, because this is driven very much by the monetary policy decisions that are either taking place or on the horizon.
Speaker 1Bundesbank, when they stopped remunerating domestic government deposits and therefore this sort of created an impetus that stimulated the reproving out of cash by domestic government departments and treasuries. So do you think that's something that is going to continue? Should we expect more of this to come into the EU and more people therefore to be accessing the central bank BM system.
Central Bank Money in Repo Market
Speaker 2So, yes, I think the ECB, which is the land of last resort in the Eurozone, has obviously, as any central bank in the world, actually on its balance sheet, government deposits, so it's on the liability side, and these deposits were usually remunerated and are usually remunerated. Now, in the case of what you just explained, in the case of the Eurozone and more precisely the case of the German central bank, the Bundesbank, they decided to no longer remunerate those. So that was a signal for us to be obviously ready with our platforms, to absorb some of that liquidity into our repo platforms, because repo is still the biggest segment of the money market. Okay, so, uh, if you look at it daily, uh, there is 800 billion in the european repo market which is secured, and if you compare that to the unsecured market, uh, where there's only 200 billion, so unsecured money market. Now we, when we say you know liquidity and we look at the cash side of the transaction.
Speaker 2So in a repo, the cash provider is the one that is actually engaging into the reverse repo, so he's purchasing the collateral, which is securities, and the principal repo. So he's purchasing the collateral, which is securities, and the principal is cash and in high-quality liquid assets, and you mentioned it in the beginning tri-party, whether it's cleared, as James has mentioned, the GC pooling, which is a cleared tri-party repo or whether it is uncleared. Tri-party is about basket trading. So you invest into a basket a cleared tripartite repo, whether it is uncleared. Tripartite is about basket trading. So you invest into a basket of high-quality liquid assets, and in the case of Clearstream's uncleared tripartite repo, this was always settled through commercial bank money, meaning that there's a risk, in case there is partial opening, that some cash remains on the balance sheet of Clearstream overnight. There is no collateral which is exchanged against it, and so the cash provider has a risk that if there would be something happening to the Clearstreams system, that the cash would be fungible and would disappear in the liquidation miles. So it was for us important to get rid of that risk and with central bank money settlement we have managed to do that.
Speaker 2So, as it was already explained by James, the cash lag of that transaction will be sitting on the direct cash account in the central bank. In-time gross settlement system of the European Central Bank means that it is actually regardless in which country you are located if you keep a DCA account as a commercial bank, in the Banque de France or in the Bank of Italy or wherever the euro is. It works so, but that's for the commercial bank side of the transaction. Now, coming back to the government deposits, they will be coming from that management office in the Eurozone. At that management office in the Eurozone and, to answer your question, we don't see it's not very transparent what the national central banks will do. Will they do what the Bundesbank has done? I mean, there is still central banks that remunerate government deposits in the Eurozone, so it's not a level playing field.
Speaker 1Okay, now I want I want to sort of break down just a little bit more of the, the sort of business development thinking behind cbm, because this tool fits into a sort of gap uh, so it's a central bank money shaped sort of gap that was in, uh, the liquidity management toolkit available to market participants. So it sort of fits in a long time alongside, you know, cleared repo and specials and that sort of thing. But it's also it's very important, isn't it, as a way to reduce those friction points that remain for certain kinds of market participant for whom running a repo book is almost not really that efficient or it feels, you know, too expensive or too complex because of dealing with the complexities, the teams of lawyers you need and that sort of stuff, potentially, when things go wrong With respect to the gap you mentioned.
Speaker 3Most certainly there was a gap. We are now the only tri-party agent who offers an uncleared repo, tri-party repo who offers an uncleared repo, tri-party repo product settled in central bank money. The product didn't exist before. We've spoken about the CCP cleared option and, yes, that certainly that does exist in different shapes and forms, but in the uncleared space definitely I would agree with you, there was a gap and we've now stepped in and filled that gap.
Speaker 3I mean, specifically, if you go back to the large public institutions that we've been talking about now, these clearly are very sophisticated organizations with very, very smart people dotted around, but they're also not commercial banks. They operate in a very different way and you tend to find that they have certain operational limitations. And this is one of the reasons why clear products appeal and also, importantly, one of the reasons why tri-party products appeal, because you get that operational outsourcing. We are, as a tri-y agent, able to fulfill a lot of the obligations that otherwise a big, heavy back office would be doing on your behalf. So what we're doing with central bank money settlement is we are not only allowing for the outsourcing of that normal BAU operational activity, which reduces your worry, your friction, your considerations of how are you going to service the assets, the lifecycle moves, all of that stuff. We're now also removing the potential settlement friction by allowing you to leave your money with your home central bank. In the Eurozone should, like Christian said, a trade not open.
Speaker 1So it's another optionality, it's another string to our bow, and for market participants this opens up new opportunities for them, I'm guessing. Intraday lending and financing, negotiating special conditions, specifying different kinds of collateral, I'm guessing all of those things are also eased and cease to be sort of friction points in their repo toolkit.
Speaker 3Yeah, yeah, I mean absolutely. And you know, again, at the risk of sounding like a broken record, I'd hammer the optionality point again because it's and we go back to that sort of compare and contrast between the CCP cleared and the uncleared world. And you know, you get a load of advantages from facing a CCP as your sole counterpart. You get standardized terms, you get a robust risk framework as your sole counterpart, you get standardized terms, you get a robust risk framework. But some of the considerations or the potential drawbacks are you do have a limited flexibility in terms of collateral sets, terms, structures to your transaction and of course you also get a slightly limited pool in terms of liquidity, because in order to participate in the CCP you have to fulfill certain requirements, and quite rightly so. And this is why products like GC Pooling are so valuable, because they are such a robust model that is easy to understand and easy to access your liquidity in a commoditized way.
Speaker 3But the uncleared market gives you a whole load of other options. So some of those harder to finance assets, some of the stuff that frankly just doesn't wouldn't rightly sit in a CCP, some of the lower quality assets you finance then in the uncleared markets, and also then, in terms of counterpart diversification and the bespoking of your transaction terms, all of that is far more possible. You're more agile in an uncleared world. So what we've done is we've and this has always been the case we've always had clients who liked the optionality allowed for in the uncleared world and also like the standardization and in the terms of cleared world. We've just bought a little bit more of that cleared structure, if you like, in terms of reducing settlement risk by settling in central bank money into the uncleared world. So we sort of we've bridged the gap, if you like christian, let's go back a bit.
Speaker 1You often in the show, obviously, I get you to set the big historical picture at the outset, but I'm going to ask you to set a little bit of that now. So I want you to take us back to the way the repo market has grown, the way that the plumbing, the infrastructure has grown, because it'll give us some sort of insight to just you know how significant repo has become, especially now that we're entering a different sort of economic, especially now that we're entering a different sort of economic, macroeconomic phase in the EU. So let's look at that. It all began in 2004. Is that right? With GC pooling, I mean, you were setting up some of the very first instances of this. I know you're out in Singapore working on securities lending developments out there as well. So take us back. I mean repo. It was a lot smaller, wasn't it? Back then. The market was an awful lot smaller. Did you imagine we were going to end up here at some point?
Speaker 2In the beginning it was domestic German paper and domestic banks only, and then GC Pudding internationalized, opening up the baskets to international securities and also international participants. Then came 2008 with the global financial crisis, where Lehman defaulted and suddenly the interbank market and also the bilateral repo market, by the way was in a crisis because there was a strong correlation risk your counterparty being a bank and receiving from that counterparty bank bonds, so bonds which were issued by banks. You can imagine some institutions had a lot of repos in flight when Lehman defaulted and so there was a bit of a stress scenario hitting Also Clearstream, because we settled bilateral repos. And then we were actually in a position where we could see that the EuroGC pooling product with the central counterparty was actually becoming the benchmark in the overnight, because it was just disintermediating the counterparty credit risk, so the central counterparty becoming the sole counterparty to the trade, and ultimately you have a basket of securities which you can then rehypothecate or repost at the central bank. That's ultimately what you would like to have.
Speaker 2Now, in parallel, we continued developing our unclear tri-party repo. Now, in parallel, we continued developing our unclear tripartite repo and we saw that there was a need to move on to a centralized repurchase agreement. So you know, the bilateral repos in the market are traded under a global master repurchase agreement, which is under UK law. It's a market standard and so you can trade triparty repos unclear with the GMRA. You can also trade other types of transactions and we decided to, in parallel to that issue, clearstream repurchase conditions, which give you the possibility to trade tripartite repos exclusively via ClearStream, and we gathered around 90 counterparties that have adhered to those ClearStream repurchase conditions by today. By the way, we launched that in 2013,. So 10 years down the road, we have almost 100 participants and this is obviously an advantage if you would like to trade with different counterparties and don't want to engage in lengthy bilateral legal negotiations with each one of them. In lengthy bilateral legal negotiations with each one of them.
Speaker 2Still, you have the counterparty credit risk, but you are already in an environment where everything settles in tri-party, meaning it's only basket trading. As James already explained, the features, these features have been upgraded constantly and our last upgrade now is that we do settlement in central bank money. But other features were discussed in previous episodes. As you know, we discussed the Oscar with Bart Coppens and Fabrice Tomenko, and so all of this is a constant evolution, as James said, of our offering, and the backbone of all of this is our collateral management engine, cmax, which is built in-house and which, as you know also from former episodes, is white-labeled around the globe. We white-label it to Australia, now we are the trial party collateral agent for the Ripple market in Canada. We just went live, by the way, with the first transactions a week ago.
Speaker 1So all of this is a natural evolution all of this is a natural evolution, yeah, and presumably these are all moves that we're making to expose market participants to a broader pool of counterparties, reducing systemic risk. You know a lot of sort of timely advancements, and it feels like this is coming, similarly, at a time where, of course, we kicked off the season with Michael Carignano and Jean-Robert Wilkin talking about the ECMS system, which is another major sort of plumbing development that's taking place in the Eurozone for settlement and these things kind of link together. Presumably it's building more systems to make central banks more accessible and more useful to commercial markets and to other kinds of financial entities.
Speaker 2The link to all of this is our collateral management system, the Collateral Management Exchange System, cmex. Now, the collateral, which in our world is securities it's either fixed income or it's equities is managed by us as a strong party agent in the basket, and what it foremost does is it adds resilience to the financial system. And you know, I mentioned global financial crisis in 2008, but then you had the sovereign debt crisis in the Eurozone in 2010. Then you had the pandemic hitting the financial markets, then you had the crisis in Ukraine, so you always have the next crisis at the horizon, and so we continue to upgrade our service in order to add that resilience.
Speaker 1Okay. So, james, this feels like a good time to come back to you, because for someone who is leading business development in that environment, you must spend a lot of time looking at the horizon and thinking about what is coming. And you know, we began the season, as I just mentioned, obviously talking about the arrival of the ECMS in the euro system. The collateral management system is linking together many, many different central banks which haven't been linked before. We've also talked about the other issues. We had Martin Nazari on from the Deutsche Finanzagentur, the debt management office, talking about their repo goals. We had Christoph Rieger from Commerzbank actually talking about repo markets and some changes in the bond markets, and certainly we've covered as well, with Alan Stewart and Catherine Pring wrapping up ETFs that are now eligible for securities lending.
Speaker 1It feels like we're gearing up here over the last 10 episodes for a very different macroeconomic outlook. We started the season in an era of quantitative easing, asset purchase programs coming out of the pandemic, and now we are looking at increased volatility, interest rates being high when they used to be low and obviously interest rates being high when they used to be low, and obviously volatility in bond markets spreads, compressing and opening up. I mean it feels like a very difficult environment to plan for. So what's on your desk now and what are you thinking about looking forward? Is it going to be sort of dominant GFF topics over the next year or so?
Speaker 3There's no longer any doubt that there is some pretty serious doubt about inflation and what central bankers' reaction to the problem is going to be. There is clearly still a lot of geopolitical risk out there and we're starting now to see a little bit of divergence in terms of the policy and the path of major central banks. I read some stats in Bloomberg I think it was the other day which essentially totted up the collective basis point hikes of the major advanced economies, and it looks like now we're set to take back maybe less than half of the 1,500 basis points.
Speaker 1That's a really straight hike. You know what, James is a real straight hike.
Speaker 2That's the last two years.
Speaker 3And the picture is changing really, really rapidly. I had to listen to the show Only a few weeks ago. I don't think I should name that. The Fed and policymakers were reaffirming their expectations. There was as many as three cuts coming in, still in 2024. And then, all of a sudden, the picture has shifted considerably. So I think the conversation now clearly is.
Speaker 2Well, I was a bit struggling in the beginning when you asked me to engage on the topic of greener. It's more about how sticky inflation will be at that higher for longer thing that we hear so much about now and we talk about central banks. There's only a certain amount that central banks can really do.
Speaker 1Geopolitical risk rising oil prices they give you headwinds that there's a limited amount that a central banker can actually do. That's okay. We've got inflation.
Speaker 2I'm in love with it. So what does it mean for us limited amount that a central banker can actually do? We've got inflation.
Speaker 3So what does it mean for us? It means for us back to my point on optionality and flexibility. We need to continue to evolve our solution.
Speaker 1I think that was a really ever-changing macroeconomic environment. We cannot be any more than anyone else.
Speaker 3A soothsayer. We don't have the crystal ball, so what we need to do with our products is ensure that we cover all the various possible optionalities. Now, clearly, cleared repo is one of those. We've seen a massive resurgence in cleared repo over the last 12 months, and as we started to see some kind of normalization from central bank policy, you know, as the rate hikes came in, cleared repo was definitely in vogue, and you know the change. Perhaps the rate of change is slowing slightly, but volumes continue to increase.
Speaker 3In addition to that, though, you know, you've got the runoff of the TLTRO programs and you have a lot of other assets that don't necessarily fit into that cleared framework coming back into the market that need to be financed. We see more CLOs, abs, that harder to finance stuff, and we are interested in offering our clients options, a marketplace to be able to finance those assets. So, yeah, like I say, we need to continue to evolve our product set to meet every possible eventuality. We don't know what tomorrow will hold. The age-old adage, the only constant is change, I think is very, very true today.
Speaker 1And Christian on your side. Similarly, if that's going to be, you know, obviously, I think, a pretty good summary of what's going to be happening for most market participants, what about, specifically, for sovereign wealth funds and central banks, because they are now operating in a new era of complexity, aren't they? And we've covered some of these issues in the series, and one of the issues we haven't really touched on this show yet is greening the financial system series, and one of the issues we haven't really touched on this show yet is greening the financial system. And we know that sovereign wealth funds and central banks have got an important role to play in many respects, a sort of policy mandated role to play in transmitting green policies into the financial system. That's, you know, undertakings that were made at COP 28, which you were also at. You get to go to all the best gigs.
Speaker 1By the way, I never leave the virtual studio. I hasten to say he never takes me. If you're listening to the show, I've got to say now he did actually fly economy to Washington, which was great, because Christian is like six foot four and the seats are made for people who are significantly shorter. So well done, christian. He really is suffering to try and green the financial system. But, christian, while you're out there, obviously you met up with many of our old friends from the show, jean-marie Maas, for example, and we know we've talked about this as well with Martin Nazari from the Deutsche Finanzagentur about greening, getting green bonds, and we know that the ETFs being used in securities lending is a chance for central banks again to access green funds and to support that. So this is important. So, from your side, how do you expect the market to develop and be the topics we'll be looking at on the horizon at the next Sovereign Wealth Fund and Central Bank Forum?
Speaker 2Actually, as you correctly point out, I'm trying to look at those projects where we talk about climate finance.
Speaker 2But I must say that for the first time that was also one of the feedbacks received around the IMF that some of the major investment houses, by side asset managers, they withdraw from ESG, and so it is linked to performance very simply, and one of the main actors being BlackRock they didn't perform as it was promised, so some of the assets that were invested in ESG didn't perform as well as they should have.
Speaker 2So we see that the geopolitical situation, with the war in Ukraine, has led to also the European Commission reviewing its policy on the Green Deal, so they wanted to be moving out of fossil fuel energies completely, which is no longer going to be the case, so that's politically also going to change.
Speaker 2So climate finance is going to stay, because the planet is definitely something that we need to take care of, but it's not going to be a priority for at least the investors. It's going to remain a priority, unfortunately, for those that suffer most from climate change and that need funding, but unfortunately, for the time being, priorities are, as James has mentioned, inflation and being competitive in a world where there is other priorities and so, but the link to the repo really, here I don't see the market for the repo in this type of bonds yet because, as we already discussed in previous shows, there is no asset purchase program that purchases back green bonds, and there is no concrete action from around the network for greening the financial system, which was created in 2017 by three central banks and not the minor ones People Bank of China, bank of England and Bank de France, and since then, many central banks have joined it, but unfortunately, it's only talks and no action. So, on the central bank front, I must say not much has been achieved in greening the financial system.
Speaker 1Now I'm going to throw this one out there as well. Actually, james, I want to get your take on this, because this does raise the thorny elephant in the room. Is there such a thing as green repo, or should we not expect to see that emerging anytime soon? You don't have a green repo product. That's sort of knocking around somewhere in the Clearstream ideas cupboard.
Speaker 3So yes and no. Can I answer yes and no? Yeah, so Clearstream have a number of solutions. This is a topic that you know. This is why Christian goes to on all of these long haul flights to these places and we show such a keen interest and active participation in these conversations because it's really, really important, and it's as important for the repo market as it is for, you know, the guys who dig oil out of the ground.
Speaker 3So we want to play our part and we have an ever-expanding set of tools in the ESG space. So we incorporate certain ESG scores into our collateral baskets to allow collateral receivers to be able to filter and specify the types of collateral that they will accept based on these ESG criteria. We've done some work with a set of Chinese banks on ESG repo and there's been trades gone live there as well, but there are still some really fundamental questions that we certainly can't answer alone. Things like what happens to the proceeds of the repo? You can have ESG collateral, so all kinds of green bonds and whatever you like, but if the proceeds of that repo, the cash itself, is used to invest in?
Speaker 1Sharks with lasers on their heads.
Speaker 3Sharks with lasers on their heads. That's not necessarily esg from front to back, from soup to nuts. So there's a lot more work needs to go on in terms of taxonomy and definition and you're standardizing these things. So it's a product, but, yeah, you know baby steps. I think to christian's point, though.
Speaker 3Central banks maybe haven't moved as far as we would have liked. We're still in very volatile markets and we're still returning to a state of what you might deem normality after, you know, decades of zero rates in a very strange world that we were living in. So we're only just gradually going back to normality and I think it's really through normality and vibrant, thriving, normal capital markets we will see these type of initiatives thriving. If you look at what the ECB has done in their latest monetary policy operational framework, they've actually sort of taken a little bit of a step back, basically, and they will still be offering not as much incentive as you might like, basically through their policy in terms of trying to encourage banks to fully return to the market, because they are still offering financing rates on pretty attractive terms for the commercial banks. So I think we need normality back first and then we can fully embrace these very worthwhile causes of ESG. But the time is now. What's the best time to plant a tree? 10 years ago.
Speaker 1I know I've asked a few crystal ball questions already, but what do you think are going to be the big topics we will be discussing in the next season and are going to be the themes that dominate the next GFF, bearing in mind that the planning process is only really beginning now, so no one actually knows. We're just giving a finger in the air answer here. So Christian finger in the air. For the sovereign wealth fund and central bank forum, what do you think are going to be the big topics we'll need to talk about?
Speaker 2That's a crystal ball question, so I'm not the best in that respect, but I think, from a perspective of monetary policy, I would say that we are out of a interest rate hike period, so, and we've seen inflation being tamed. But, as I mentioned in my introductory remark, despite these hikes by central banks around the world, the world economy is growing and forecast by the IMF is 3.2% also in 2025. So it's a world economy that remains resilient. First, that would be my first remark. Second remark is with regards to what needs to be done on the front of climate change. Yes, cop28 was in Abu Dhabi and the next COP is going to be in November in Azerbaijan, in Baku. It's again an oil exporting country and the signal is very clear they want to put pressure on oil exporting fossil fuel energy countries, or they want to incite them to lead by example. So there will be money coming from sovereign wealth funds, from oil exporting countries, that will be channeled towards climate finance and greening the financial system, definitely so. Second remark, finally, to come back to the topic of today's show repo, I think that our tri-party repo platforms, whether unclear or cleared, whether it's the GC pooling, the special repo, which is cleared, or the classical clear stream tri-party repo.
Speaker 2We've seen that there was an inverse correlation. Whenever central banks were stepping in to fight crisis I mentioned several crises there were extraordinary measures Some of them were mentioned by James. I would not go over them again but the inverse correlation is that whenever the central bank came in and eased the monetary policy, we saw our products losing volumes. And whenever the central bank moved out of extraordinary measures back to the normal, we saw our products coming back in, products coming back in, and I think that is what we hope for the next future, or for the next month, and also for the beginning of 2025, when we will host our next GFF Summit.
Speaker 1Okay, and James? On that front, I see that as the Bitcoin price bumps along in an unexpectedly disappointing way Although, if you've been around crypto and blockchain as long as I have, there's nothing unexpected about the disappointment, james. So I have to ask you people are very disappointed that stagflation might be on the horizon in various economies. The Fed didn't arrive with rate cuts as expected, and that's hit those riskier assets like gold and bitcoin, and people are concerned about the potential economic issues ahead. Do you think those are going to be topics we should be, uh, exploring at the next gff, or are there bigger fish to fry?
Speaker 3no, I, I think so. Um, yeah, well, you have to remember I may. Um, maybe we haven't spoken about this. I'm a massive bitcoin skeptic. We could fill a podcast in just that conversation, because I know you're the other side of that train. Yeah, I hope you like your film references. I hope we're talking about back to the future, getting back on track and the things you know the return to normality, proper market function. I hope that's what we're talking about. And then in that conversation, is ESG building liquidity in these other very worthwhile segments of the market? I suspect, however, the cynic in me thinks that we're probably going to still be having a conversation around higher, for longer, sticky rates, divergent central bank paths, persistent geopolitical risk and some of the issues that we have that are clearly here to stay.
Speaker 2But the Optimist back to the future.
Speaker 1Okay, good, well, I mean, there you go, and that feels like a great place for us to tie it all together and to thank, I think, someone who from now on will be the Marty McFly of Collateral Liquidity and Lending Solutions, mr James Cherry, head of business development there. James, thank you very much. And, of course, I couldn't do the show without my co-host, who does huge amounts of research, who lines up the guests, who is the man with the contacts, the knowledge, the historical perspective, the complex grasp of macroeconomics all those things that I don't have here, sitting surrounded by computers and mixing desks. So I'm going to say a huge thank you for the legend, the vice president of Central Bank Public Sector Products and Services at Collateral Liquidity and Lending Solutions at Clearstream, and very good friend, mr Christian Rossler.
Speaker 2Thank you, Andrew. It was again a pleasure to host this episode, as well as the entire season and, yes, looking forward to season four.
Speaker 1And also James, just a quickie before you go, because I'm guessing that you might get a break at some point between now and the next season of the GFF podcast. So have you got any summer holiday plans?
Speaker 3We do early summer holidays, so we're going to Mallorca in a couple of weeks. We've got a client event in Dubai next week, then my wife is in Miami for a week because she does also have a job as well and then we're off to Mallorca.
Speaker 1Wow, okay, okay. So sun worshipers uh, there, clearly. And christian uh, what about yourself? Have you got any summer holiday plans now? If you could see him on the feed now, he's shaking his head and holding a piece of paper that says they don't let me have holidays, uh, so christian.
Speaker 2No, that's not what I'm saying.
Speaker 3Link twice, if you need help.
Speaker 2Yeah, no, I must say that I've been traveling, as James said, and I will be traveling again, and yeah, so for work, and yeah, I will find some time in summer, but I will not take a plane as it hurts my back, as you correctly pointed out. So I will do something where I will not have to sit for hours, but I'm looking forward to a little break. Yes, sometimes in july.
Speaker 1Yes, well, you're a very green man, christian. I'm sure you can stick a mountain bike on the tesla and whiz off to the alps and do something. Reduces your carbon footprint. And I should point out, uh as well, that clear stream does an awful lot to focus on reducing its carbon footprint, so, don't worry, the flights are all covered from a climate point of view. Okay, and christian.
Speaker 1Well, I guess that all that remains then is, in addition to, uh, thanking james marty mcfly, thanking James Marty McFly Cherry, and also thanking you, christian, high Quality Liquid Assets Rossler, to say goodbye from everyone here at the GFF podcast and from the team at Clearstream here in the virtual studio, and from myself, andrew Keith Walker. Very much the Bitcoin ETF, which means, hopefully, I'll still be around in a couple of months for the next season. In the meantime, we're going to be taking a break, and then we will be back with some new and exciting news, won't we Christian? We're going to have an experiment where we will have an AI co-host joining us for some, if not all, it depends if it works some of the episodes, if not all of them, in the next season. Yes, we're going to be enhancing the show with AI, with extra video and all sorts of Easter egg surprises as well. So do stay tuned for that.
Speaker 1And in the meantime, you want to get in touch with anyone here? You want to network with James, network with Christian, connect with the team at Collateral Liquidity and Lending Solutions? Do follow us on our LinkedIn page, that's linkedincom. Slash company, slash Clearstream. And in the meantime, from all of us here, have a good break if you're having one, and a great summer if you're working through, and we'll see you soon. Bye-bye and don't forget. This show is brought to you by Clearstream Banking, one of the major sponsors of the GFF Summit each year in Luxembourg, and features members of the Clearstream team and special guests expressing their personal opinions, not the opinions of Clearstream as an organization. And, of course, don't forget that not only information in this podcast should be taken as legal, tax or other professional advice. See you next time.