U.S. banks have intensified efforts to ensure that their funds and assets are properly protected, after the MF Global scandal where an estimated $1.6 billion in customer funds vanished, according to a Federal Reserve survey released on Thursday.
Over the past six months, U.S. banks have boosted arrangements to ensure that their collateral and margin are protected by a third party to reduce the risk of anything happening to their funds, said the report.
Following the failure of MF Global in October, market players have "focused more intensively on the possible consequences of financial distress on the part of dealers with whom they have posted collateral," said the Fed's quarterly survey of senior credit officers.
MF Global filed for bankruptcy October 31 after investors and customers became rattled over the firm's $6.3 billion bet on European sovereign debt.
The brokerage has been accused of improperly dipping into customer funds to stay afloat. Keeping money at third-party banks would prevent such misuse.
The Fed survey also found that markets for securities linked to commercial mortgages and consumer assets, such as car loans and credit card payments, are more liquid for the three months ending in February than in the previous two quarters.
More than half the banks surveyed by the Fed found that hedge funds increased their efforts to negotiate more favorable credit terms over the last three months.
The majority of senior credit officers surveyed are affiliated with a primary dealer, or a financial firm authorized to deal directly with the government to help carry out monetary policy and distribute U.S. debt.
SOURCE Reuters
