Collateral, from Duncan Coker

October 30, 2013 |

Collateral plays a big role in the system at large. If the banks can survive only through overnight funding at either the repo, MRO/LTRO, or Fed discount window, acceptable collateral is as important as rates. To ease the Fed can ignore rates and just say one day they will except IBM or Apple debt or commercial paper as collateral in exchange for loans. Conversely they could slip in some language about raising "haircuts" on notes or bills to have a tightening effect. While all are focused on the level of bond buying, there are many other tricks they can pull from the sleeves.

Richard Owen writes: 

They say the securitisation markets died.

Not so. It is just the banks began wrapping to repo rather than sell.

The ECB gave it a pill by agreeing to accept any AAA collateral. Standard practice is to wrap your doo doo, top slice it, and fund the AAA at ECB.


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