When the coronavirus arrived, the treasury markets began to open up even more. It showed officials that it was not time to withdraw from its repo operations in the market, but to accelerate them. 1) The dependence of the tripartite pension market on intra-day credit granted by clearing banks to the siFI global premium. 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. The buy-back contract, or “repo,” the market is an opaque but important part of the financial system, which has recently attracted increasing attention. On average, $2 trillion to $4 trillion in pension transactions are traded every day — guaranteed short-term loans. But how does the pension market work, and what about it? 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. Cornell Law School. “Counterparty credit risk related to repurchase transactions, mortgages and OTC derivatives.” Access on August 14, 2020. The Fed planned to continue these operations until the second quarter of 2020, when it planned to rejuvenate its repo operations.
In the case of a repurchase transaction, the Desk acquires cash, agency or mortgage-backed securities (MbS) from a counterparty, subject to a subsequent resale agreement. It is economically akin to a loan secured by securities with a value greater than the loan, in order to protect the desk from market and credit risks. Reseat operations temporarily increase the amount of reserve balances in the banking system. An open pension contract (also called on demand) works in the same way as an appointment period, except that the trader and counterparty accept the transaction without setting the due date. On the contrary, trade can be terminated by both parties by notifying the other party before an agreed daily period. If an open deposit is not completed, it is automatically crushed every day. Interest is paid monthly and the interest rate is reassessed by mutual agreement at regular intervals. The interest rate on an open pension is generally close to the federal rate. An open repo is used to invest cash or finance assets if the parties do not know how long it will take them. But almost all open agreements are concluded in a year or two.
The main responsibility for stabilizing the market lies with the New York Fed. This regional bank of the Fed is responsible by the Federal Open Market Committee (FOMC) to conduct its open market operations, that is, those who have taken over in what are called “night pension operations”. Beginning in late 2008, the Fed and other regulators adopted new rules to address these and other concerns. One consequence of these rules was to increase pressure on banks to maintain their safest assets, such as Treasuries. They are encouraged not to borrow them through boarding agreements. According to Bloomberg, the impact of the regulation was significant: at the end of 2008, the estimated value of the world securities borrowed was nearly $4 trillion.