Let`s see that a bank A wants to find money today. The Fed is considering the creation of a permanent reseal facility, a permanent offer to lend a certain amount of cash to pension borrowers each day. it would effectively cap short-term interest rates; No bank would borrow money at a higher interest rate than it could receive directly from the Fed. A new facility “would likely provide significant security in controlling the key interest rate,” Fed employees told officials, while temporary operations would provide less precise control over short-term interest rates. Despite these benefits, people who use pension transactions also take some risk. Bank A wants to invest this amount in a business and hopes to be able to return the money tomorrow. It can enter into an agreement with Bank B in which Bank B Bank A can lend the necessary cash to Bank A for one day. (b) Rest are those with initial durations greater than one day, excluding ongoing contracts and retail operations; a relatively small number of night rests in savings institutions. As in the first example, the legalistic approach is insufficient to reflect the financial aspect of the transaction, which is the essence of a rest. In addition, the legalistic approach may make it more difficult to classify a common variant of repurchase, including a mixture of different securities. In this case, it would be difficult to implement the deposit segmentation recommended in the MBS.
Since the different securities represent liabilities from different sectors, the repot could only be categorized in practice on the basis of the financing approach. Because triparties manage the equivalent of hundreds of billions of dollars in global guarantees, they have the subscription scale to multiple data streams to maximize the coverage universe. As part of a tripartite agreement, the three parties to the agreement, tripartite representatives, collateral/cash suppliers (“CAP”) buyers and repo sellers (“COP”) agree on a protection management agreement, including a “legitimate collateral profile.” In 2008, attention was drawn to a form known as Repo 105 after the Collapse of Lehman, since Repo 105s would have been used as an accounting ploy to mask the deterioration of Lehman`s financial health. Another controversial form of buyback order is the “internal repo,” which was first highlighted in 2005. In 2011, it was proposed that, in order to finance risky transactions on European government bonds, Rest could have been the mechanism by which MF Global endangered several hundred million dollars of client funds before its bankruptcy in October 2011. Much of the deposit guarantee is obtained through the re-library of other customer security. [22] [23] Pension transactions are generally considered safe investments, since the security in question is a guarantee, which is why most contracts involve U.S. government bonds. Considered an instrument of the money market, a pension purchase contract is indeed a short-term loan, guaranteed by security and an interest rate. The buyer acts as a short-term lender, the seller as a short-term borrower. The securities sold are the guarantees.
This will help achieve the objectives of both parties, namely the guarantee of financing and liquidity. If, instead, the legalistic approach were adopted, the financial aspect of the reaner transaction would not be covered.