A study released yesterday by Greenwich Associates says, "A significant number of institutions says they are considering or have already suspended their securities lending program, either temporarily or permanently." The survey, entitled, "After Credit Crisis Breakdowns, Institutions Overhaul Practices in Securities Lending Pools and Short-Term Funds," polled "141 corporate pension funds, public pension funds, endowments, and foundations, including 120 with at least $1 billion in assets under management."

Greenwich says, "During the worst of the crisis last year, a significant proportion of U.S. institutions experienced either an unexpected interruption in liquidity or unanticipated risks and credit exposures in securities lending pools and short-term investment funds, and a relatively small number of institutions were forced to realize losses." The survey cites the heavy concentration of the securities lending industry, saying 117 of the 141 institutions polled use Bank of New York/Mellon, State Street Bank & Trust, or Northern Trust.

The release also says, "In the wake of these dislocations, institutions are reviewing their policies governing securities lending pools and short-term investment funds, and are considering implementing the following changes: Evaluating the costs and benefits of the securities lending program, and discontinuing or modifying it; Stepping up their oversight of fund investment practices, increasing the frequency of communications with managers; and, Tightening investment guidelines by restricting investment in SIVs, CDOs and other structured, securitized product or limiting investment to government securities."

"Based on our research results, it seems safe to say that both institutions and their providers had become a bit too complacent in the run-up to the credit crisis.... The credit crisis served as a difficult reminder that there are no free lunches in investing," says Greenich Associates consultant Dev Clifford.

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