...Secured Lending: In economic terms a repurchase agreement (repo) is comparable to a collateralised loan or secured deposit. One party buys securities from another party, which then agrees to buy those securities back at a future date. In Europe a true sale occurs, whereas in the US assets are pledged and granted an automatic stay under insolvency law. Liquidity and Funding Tool: Repos can provide users with access to short-term funding in exchange for assets or the ability to place short-term cash on a secured basis, thus acting as a liquidity management tool and serving an important role in cash management. Credit Risk Double Indemnity: Repos provide a double indemnity against credit risk; if the counterparty defaults then the other party has recourse to the collateral. Margin is posted and maintained, mitigating the risk of mark-to-market losses. Primarily Government Collateral: The majority of repo collateral in Europe is government securities issued by highly rated sovereigns such as...
