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. Liquidity hedging rate (LCR) and internal stress tests at the bank. The LCR requires banks to have sufficient liquid resources to guarantee short-term and short-term debt. Some observers have indicated that the LCR is resulting in an increase in demand for reserves. However, past and present regulatory authorities point out that the CRA probably did not contribute to the volatility of the repo market, as treasury bills and reserves for the definition of high-quality liquid assets are treated on the same level in the regulation. Like many other corners of finance, retirement operations contain terminology that is not common elsewhere. One of the most common terms in repo space is “leg.” There are different types of legs: for example, the part of the retirement activity that originally sells security is sometimes called “starting leg,” while the subsequent buyback is the “close leg.” These terms are sometimes replaced by “Near Leg” or “Far Leg.” Near a repo transaction, security is sold. Although the transaction is similar to a loan and its economic effect is similar to a loan, the terminology is different from that of the loans: the seller legally buys the securities from the buyer at the end of the loan period. However, an essential aspect of rest is that they are legally recognized as a single transaction (important in the event of a counterparty`s insolvency) and not as a transfer and redemption for tax purposes. By structuring the transaction as a sale, a repot provides lenders with significant protection against the normal functioning of U.S. bankruptcy laws, such as.
B automatic suspension and prevention of provisions. In 2007-08, a rush to the renudisument market, where investment bank financing was either unavailable or at very high interest rates, was a key aspect of the subprime mortgage crisis that led to the Great Recession.  In September 2019, the U.S. Federal Reserve intervened in the role of the investor in providing funds in the pension markets, when overnight interest rates increased due to a number of technical factors that limited the supply of available resources.    On the one hand, the buyback transaction is a fairly simple means of obtaining credit and, on the other hand, it may be a complex financial instrument associated with a higher credit risk than normal credit risk.