Despite the similarities with secured loans, deposits are actual purchases. However, since the purchaser only temporarily owns the guarantee, these agreements are often considered loans for tax and accounting purposes. In the event of bankruptcy, pension investors can, in most cases, sell their assets. This is another difference between pension credits and secured loans; For most secured loans, bankrupt investors would automatically go bankrupt. But few observers expect the Fed to make such a facility for rehabilitation soon. Some fundamental issues remain to be resolved, including the interest rate at which the Fed would lend, the companies (alongside banks and primary traders) that would be allowed to participate, and whether the use of the facility could be stigmatized. For the party that sells security and agrees to buy it back in the future, it is a repo; for the party at the other end of the transaction, the purchase of the warranty and the consent to sell in the future, it is a reverse buyback contract. GLOBAL SIFI Supplement. At the end of each year, international regulators measure the factors that make up the systemic score of a global systemically important bank (G-SIB), which in turn determines the G-SIB capital supplement, the additional capital greater than what other banks must hold. If you have many reserves, a bank will not differ beyond the threshold that triggers a higher mark-up; these reserves for treasuries on the pension market could be borrowed.
An increase in the systemic score that pushes a bank to the immediately higher level would lead to a 50 basis point increase in the capital premium. Banks that are near the top of a bucket may therefore be reluctant to enter the repo market, even if interest rates are attractive. In the United States, deposits were used as early as 1917, when war taxes made old forms of credit less attractive. Initially, deposits were only used by the Federal Reserve to lend to other banks, but the practice quickly spread to other market players. The use of rest developed in the 1920s, disappeared due to the Great Depression and World War II, then expanded into the 1950s and grew rapidly in the 1970s and 1980s, thanks in part to computer technology. [6] In the case of a reverse repurchase transaction, the opposite happens: the desk sells securities to a counterparty, subject to a subsequent repurchase agreement at a higher repurchase price. Reverse pension operations temporarily reduce the amount of reserve balances in the banking system.
