Securities Finance: Securities Lending and Repurchase Agreements (Frank J. Fabozzi Series)
This is what I’m currently reading. I normally would not read something like this because this is the type of stuff I would typically consider dry and dull. However, recently I’ve been motivated to learn more about the type of work I’m in, securities lending. Being in the operations side of things, I didn’t really get the “big picture” of how stock loan works and wanted to gain a more holistic view of the way things work.
I’m still in the very beginning of the book. Really heavy stuff that takes a long time for it to sink in, but I actually find a lot of it fascinating. One particular section really struck me, of which the title of this post is named after. I wish in college, at the very beginning of your finance/economics career, they explained why the things you were going to learn and the work you were going to do would be important in the greater scheme of things. And in such eloquent terms.
Here’s an excerpt:
A growing number of economists and policymakers, backed up by day-to-day experience, now share a consensus view: robust capital markets, which offer a full array of modern financial products and practices, contribute to long-term national economic growth by encouraging entrepreneurship and innovation, even given periodic market corrections.
Capital markets can finance economic growth more efficiently than traditional bank-lending systems that depend on making a “spread” of interest rate revenue over the banks’ costs of funds. Capital markets can more easily diversify and distribute risk by dividing shares in the equity ownership or portions of the debt involved in financing enterprises into stocks and bonds, which in turn can be more widely dispersed among investors than traditional loans.
The availability of active markets for shares in new enterprises then enables venture capitalists to make a range of investments in a variety of high-risk ventures–in the hope that one or more spectacularly successful IPOs will more than make up for other ventures’ failures and losses. Traditional commercial banks, by contrast, cannot risk lending to an array of unproven startups–however promising–because banks cannot earn enough additional interest on those new firms that succeed to make up for capital they are likely to lose when other, unproved borrowers fail.
