A pension contract (repo) is a short-term guaranteed credit: one party sells securities to another and agrees to buy them back at a higher price at a later price. The securities serve as collateral. The difference between the initial price of the securities and their redemption price is that of the interest paid on the loan called the pension rate. In mid-September 2019, two events coincided to increase the demand for liquidity: quarterly corporate taxes were due and this was the date of settlement of previously auctioned Treasury bills. The result is a significant transfer of reserves from the financial market to the state, which has led to a disparity between demand and supply of reserves. But these two expected developments do not fully explain the volatility of the pension market. U.S. Bank President Jerome Powell and New York Fed President John Williams said in a letter to Representative Patrick McHenry (R-NC) that the Fed would continue to consider a wide range of factors, including supervisory expectations regarding internal liquidity stress tests. They found that non-bank-regulated firms, such as money funds, state-subsidized enterprises and pension funds, are also reluctant to intervene when pension rates rose sharply in mid-September, indicating that other factors than banking regulation could be important.

With respect to securities lending, it is used to temporarily obtain the guarantee for other purposes, for example. B for short position hedging or for use in complex financial structures. Securities are generally borrowed for a royalty, and securities borrowing transactions are subject to other types of legal agreements than deposits. The parties agree to cancel the transaction, usually the next day. This transaction is called a reverse repurchase agreement. In the case of a reverse repurchase transaction, the opposite happens: the desk sells securities to a counterparty, subject to a subsequent repurchase agreement of the securities at a higher repurchase price. Reverse pension operations temporarily reduce the amount of reserve balances in the banking system. Although the public authorities are not bound by the Financial Accounting Standards Board (FASB), FASB`s Statement 140 affects counterparties to buy back transactions with governments. FASB`s statement No.

140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities,” generally provides that the purchaser of the pension (i.e. the public body) has the right to sell or replace the securities, the pension seller (i.e. the bank or trader) has no right to replace them or terminate the short-term contract. The buyer is required to register both securities as well as any obligation to return the securities. The recruit is required to reclassify securities from a portfolio of securities or an investment account to a securities security account on their balance sheet. As a result, the underlying type of pension transaction can move from a buyback transaction to a secured loan. This change in the treatment of pension transactions as secured loans would make them illegal for local governments in many states. According to Yale economist Gary Gorton, the repo has grown to offer large non-depository financial institutions a method of secured lending, consistent with deposit insurance provided by the government in the traditional banking system, with guarantees being a guarantee for the investor. [3] Master`s buyout contract.

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