One way to solve the shortage of collateral in Europe is by requiring the banks to provide ultra transparency.
By disclosing on an on-going basis their current asset, liability and off-balance sheet exposures, banks allow market participants to price their loans and investments.
Central banks can then lend against the bank's whole loan portfolio since the central bank can now look to an independent market value for the portfolio.
This frees the banks up to lend other assets into the repurchase funding markets.
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