Reverse Repurchase Agreement Default Risk

Under CRE20.8, a lower risk weighting may be applied, at national discretion, to a bank`s exposures to the state (or central bank) in which the bank is registered and where the risk is denominated in and financed in that currency. National supervisors may extend this treatment to certain parts of state-guaranteed (or central bank) exposures if the collateral is denominated in national currency and the exposure in that currency is financed. A risk may be covered by a guarantee that is indirectly counter-guaranteed by a State. Such a risk can be considered to be covered by a State guarantee, provided that a repo bill at maturity does not actually provide the lender in cash with the guarantees mortgaged by the borrower (in cash). On the contrary, it is placed by the borrower for the lender in an internal account ("on deposit") for the duration of the trade. This has become rarer with the increase in the repo market, in particular due to the creation of centralised counterparties. Due to the high risk to the lender in cash, these are usually only dealt with large financially stable institutions. State-owned enterprises,10 PSEs, multilateral development banks (MDBs), banks, investment firms and other supervisory financial institutions with a lower risk weight than counterparty11 It is essential to take into account that repo investors are willing to accept general guarantees, but that there are specific obligations necessary for repayment operations. despite repo investors who are willing to accept general guarantees - and therefore to take into account specific trades regarding repo operations that require certain bonds. These special trades are used for special guarantees. Banks must ensure that sufficient resources are allocated to the orderly operation of Margin agreements with OTC and securities finance account parties, taking into account the timeliness and accuracy of their outgoing margin calls and the response time to incoming margin calls.

Banks need to have guidance on collateral risk management in order to control, monitor and report on collateral: the framework set out in this Chapter applies to bank accounting positions weighted according to the standardised approach. . . .

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Kategorien: Allgemein