Mr. Oliver Gilvarry:

In essence, rehypothecation is the reuse of collateral. A money market fund that is holding cash might borrow a government or corporate bond from another party and lend cash on the back of it, with the bond as security. The issue with rehypothecation is that once a proper framework is put in place, sufficient collateral must be provided. If, for example, the bond was valued at €100, the fund would only lend €90 in cash to ensure a buffer of over-collateralisation. If there is any movement in the value of the collateral, further cash calls can happen. However, an issue can arise if the asset is further lent on through the chain and something happens.

If one of the parties to which this asset in essence has been passed fails, where does the asset lie? Who owns the asset? Within the money market fund regulation that is proposed, rehypothecation by money market funds will not be allowed. Under the Central Bank's rule book, they were not allowed to enter into rehypothecation either. If one of the counter parties fails in a pass the parcel scenario, who owns the asset? We saw in the failure of Lehman Brothers in 2008 that there were strings of collateral about which nobody knew. As Mr. Carrigan outlined, a large part of the legislation put through in Europe and internationally is aimed at increasing transparency to give regulators such as the Central Bank the tools and the information to see what is happening in these activities for which we had no information in the past because there was no requirement to pass it on to us.