Collateral LoansSecured loans
6. Are there any assets used as collateral in the repos repurchase agreement markets?
Are there any assets used as collateral in the repos repurchase agreement markets? In the ideal case, the collateral should be free of loan and solvency risks. It would be safe to say that the value of such imperfect collateral would be fair, which means that it would be simple to resell it at a foreseeable value in the case of collateral provider failure.
In fact, the kind of assets that comes nearest to this pattern and is indeed the most widely used kind of collateral in the repos markets are loans denominated by credible corporate sovereigns. ICMA's semi-annual poll of the EU repos estimated that about 80% of EU securities denominated in sovereign securities are covered by repurchase agreements.
Treasury paper can make up about two-thirds of this US repurchase agreement (repo) investment income (and the bulk of the remainder is government-guaranteed agent notes and agent mortgage-backed bonds (MBS)). Redemption with collateral other than high-quality treasury notes is often referred to as ADR. At the threshold between the state and the loan epic are "high-grade" loans from trans-national entities such as the International Bank for Reconstruction and Development (IBRD), as well as treasury loans (foreign exchange loans from governments) and agent loans (issues by public-sector borrowers such as the state-guaranteed US mortgages banks).
Although these issuances are AAA-rated and often large and illiquid, they do not provide the maturity and volume breadth of the large sovereign debt market. Long-term debt instruments denominated by sovereigns in newly industrializing countries are contained in the CRA. Nevertheless, many of them are big problems and can be reasonably fluid.
Privately held wealth is the smallest part of the repurchase agreement finance network. These investments are generally more risky and much less solvent than sovereign securities. Corporates, usually preferred uncovered notes denominated by investors, rating agencies and non-financial corporations. Shares, in particular basketing of indices such as FTSE-100, CAC and DAX.
Pfandbriefe backed by a pool of public-sector loans or mortgage loans included in the issuer's accounts but protected by law under specific statutory provisions. Pfandbriefe denominated in jurisdictions with a strong bank sector are enjoying growing acceptance as collateral, also because the supervisory authorities have signaled their acceptance of complying with the supervisory authorities' key solvency figures.
Debtgage-backed bonds (MBS), in particular resident MBS (RMBS), which are kept off the borrower's books and contracted as part of insolvency remotes for SPVs. In order to be generally acceptable as collateral, these emissions must have an AAA rating. The use of this kind of assets as collateral, however, declined during the downturn as MBS was contagious with subprime mortgages and increasing defaults in some real estate market.
Miscellaneous asset-backed security (ABS) and re-securitisation (CDO, CLO, CLN, etc.) classified as non-performing, i. e. hold outside the scope of the author's financial statements and contracted to separate SPVs in the event of insolvency. These types of investments also continued to suffer during the downturn from the spread of collateral pool backed bonds, including subprime mortgage or MBS.
Short-term notes such as treasuries and, in some cases, CD and CP. Loans from banks, also known as loans. Loans from banks must be made portable in order to be used as collateral, which can be a regulatory hurdle in some states.
Loans from banks are seen as a low fund of high-quality collateral that could help mitigate potential collateral shortages globally. It is a very special kind of collateral, but its use has been reinforced by the interest in bullion created by the downturn.