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This article was first published in the February 2016 international edition of Accounting and Business magazine.

It is not unusual for successful careers to begin small and grow large. Even so, the professional journey of Brian Ruane FCCA is an extreme case. Having started out as a professional accountant focusing on small and medium-sized companies in Dublin, he is now chief executive of BNY Mellon’s broker-dealer and repo services business, which facilitates US$1.6 trillion a day of tri-party to the world’s top banks. 

The challenge that Ruane and his team have faced over the past few years has been one of global significance – helping to lead an effort to fix a system of bank financing that came close to breaking down during the 2008 financial crisis.

‘The tri-party repo system might seem like an arcane business to outsiders, but it is at the heart of how the global banking system operates,’ says Ruane. ‘The tri-party repo market is the main way banks fund themselves and it is also the principal collateralised investment opportunity for institutions that wish to lend short term. As such the steady functioning of this market is key to the safety and soundness of the banking system.’

Born in the US and brought up in Ireland, Ruane took an indirect route to his current post. After studying for the ACCA Qualification in Ireland and working briefly as a professional accountant, he obtained an MBA in international banking and finance. From there, he joined BNY Mellon, a historic Wall Street name that can trace its roots back to a bank » founded in 1784 by America’s first Treasury secretary, Alexander Hamilton. 

Ruane started in the securities banking division, which counted the top global banks and broker-dealers among its clients. Having successfully run BNY Mellon’s business servicing hedge fund clients since 2009, Ruane rose to become head of the broker-dealer and tri-party repo business in 2012. 

BNY Mellon is at the heart of this crucial part of the financial system, with a roughly 80% share of the market. In a tri-party repo transaction, an investment bank will pledge collateral – various securities – in return for short-term cash from asset managers, pension funds or insurance companies. The deal is facilitated by a clearing bank, usually BNY Mellon or JP Morgan Chase, which values the securities being pledged as collateral and holds the assets in separate accounts to ensure that they can be claimed in case one party to the transaction fails.

Hard times

These deals, normally part of the plumbing of the financial system, were the subject of significant regulatory attention after the 2008 financial crisis exposed vulnerabilities. Tri-party funding dried up for the likes of Bear Stearns, Lehman and Countrywide, helping to seal their fate. After the dust settled, the Federal Reserve Bank convened the Tri-Party Repo Infrastructure Reform Task Force – composed of the key market participants in the industry and regulators – to ensure that in the future the market would continue to function smoothly even under conditions of extreme stress.

As the market leader, BNY Mellon was expected to take a leadership role. ‘The first challenge for the task force was to identify the potential weak points in the system,’ says Ruane. One of the main problems was that the market allowed investment banks to post collateral of lesser credit quality, such as equities, asset-backed or mortgage-backed securities. ‘So in the event of a default, creditors could be left holding depreciated or illiquid collateral.’ 

Most tri-party deals were overnight loans, and so needed to be renewed in bulk on a daily basis. ‘This concentration of rollover risk was also a potential weakness of the repo market as a whole,’ says Ruane. In addition, the clearing banks made available large secured, uncommitted intraday credit to investment banks to facilitate the rollover of a repo transaction. That created an extra layer of risk both for the system and for the clearing banks, resulting in one of the most important recommendations of the task force – the practical elimination of intraday credit. 

Finally, the settlement process was outdated and poorly understood by market participants, who were largely unaware of the potential hiccups until problems arose. In addition, the market is now more transparent and standardised than before the financial crisis.

Ruane and BNY Mellon also faced a diplomatic challenge: ‘Forging a new process was going to entail significant costs and require change by everyone in the industry, including BNY Mellon. We needed to help find solutions for our clients and the market and take the lead in investing in the technology that would modernise repo and restore confidence in the market.’

Global team

To achieve this, Ruane led a multi-disciplinary team comprised of technologists, business strategists, project managers and compliance officers around the world. ‘We used a “one-team” approach in which various parts of the business came together and worked closely with our clients, the broader market and regulators,’ Ruane says.

At the core of BNY Mellon’s investment in this new process, which the company spent about US$100m developing, was a new technology infrastructure that fully automated clearing and settlement of repo transactions. This practically eliminated the need for intraday credit from the clearing banks – significantly reducing the credit risk in the market. ‘Over four years, we managed a 97% reduction in the amount of intraday secured credit, from about US$1.4 trillion to around US$28bn,’ he explains.

The industry overhaul that Ruane and his team helped achieve included various other fixes. For a start, investment banks were required to post higher quality collateral – typically highly rated government bonds. ‘This collateral upgrade had the advantage that securities would actually gain in value during a crisis as investors seek refuge in safe assets,’ he explains. The term structure of the repo market was also changed. Instead of being based largely on overnight loans, the tri-party repo market has shifted to deals with a 30-day commitment or longer. ‘The benefit here is that fewer arrangements are rolling over on any single day, which makes the market more stable in times of crisis,’ Ruane says. ‘In addition, since creditors are making a longer financing commitment they typically require more collateral.’ 

Ruane believes the new tri-party framework has benefits that extend beyond Wall Street to the public as a whole: ‘It makes the banking system a safer, more transparent place overall and reduces the likelihood of future failures.’ 

Lessons for Europe

The system developed in the US may also carry lessons for Europe. At the time of this interview, Ruane was in London to deliver a keynote speech at the European Repo Council AGM on the US tri-party reforms. BNY Mellon has also produced a white paper with PwC, The Future of Wholesale Funding and Tri-party Repo. ‘European banks and repo desks are looking to see if they can benefit from the US tri-party reform experience and adapt some of the techniques we have developed for the European market,’ says Ruane.

Aside from these broader social and economic goals, fixing the tri-party repo market was a business imperative for BNY Mellon. ‘This market is a core part of our overall business,’ Ruane says. ‘We needed to ensure that we helped the industry back on a growth trajectory after a sharp contraction due to the financial crisis. We didn’t take a financial loss in 2008. However, it was not good for business when the market froze up.‘ In this too, the tri-party reforms appear to have succeeded. 

‘Confidence in the way the process works has returned and the result is that the market is growing again,’ says Ruane. New entrants have entered the market, which he sees as ‘a sign that the tri-party market is back on track and is more stable than before. We expect it to continue to evolve and want to be part of that.’

‘This was a huge team effort by BNY Mellon and the overall repo market and it is clear that the team was up to the challenge,’ he says. 

Christopher Fitzgerald and Fernando Florez, journalists