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Repurchase Agreement Exposure

April 12th, 2021

(i) A national bank or a federal EEAS savings bank may, with prior written authorization from the CCO, pay a measure of counterparty credit risk, for example. B.dem the peak of the EEAS, corresponding to an alpha value 1.4 times greater than epEunstressed and EPEstressed for any counterpart whose EEAS is measured according to the alternative measure of counterparty exposure. The National Bank or the Bundessparkassenverband must demonstrate the conservatism of the counterparty credit risk used for the EEAS. With regard to paragraph (d) (10) of this section: the effects of master compensation agreements on securities financing transactions (SFTs) can be taken into account when calculating capital requirements under the conditions and requirements set out in CRE22.62 to CRE22.65. If LFS is subject to a control compensation agreement, whether held in the bank portfolio or in the trading portfolio, a bank cannot recognize the offset effects when calculating the capital. In this case, each transaction is subject to a capital charge, as if there were no tribal compensation agreement. A pension purchase contract, also known as repo, PR or Surrender and Repurchase Agreement, is a form of short-term borrowing, mainly in government bonds. The distributor sells the underlying guarantee to investors and, by mutual agreement between the two parties, buys it back shortly thereafter, usually the next day, at a slightly higher price. About half of the reinvested guarantees were NAIC 1, reflecting high credit quality, and nearly 60% were considered investment categories on the basis of NAIC 1 and NAIC 2. A large part (about 39%) reinvested security was not named (or denominations were not available).

Given the nature of short-term bond lending contracts, this is not a surprising trend (and nothing to worry about). xi) a national bank or federal savings association must have a comprehensive stress test program covering all counterparty credit risks and including stress tests of key market risk factors and counterparty solvency. The 20% limit for the risk weighting of a guaranteed transaction does not apply and a risk weighting of 0% can be applied to the guaranteed part of the risk if the exposure and guarantees are denominated in the same currency, and so: there are a number of differences between the two structures. A repo is technically a single transaction, while a sale/buyout is a pair of transactions (a sale and a purchase). The sale/purchase does not require specific legal documents, whereas a repo usually requires a master`s agreement between the buyer and the seller (usually the Global Master Repo Agreement (GMRA) mandated by SIFMA/ICMA). For this reason, there is an increase in the risk associated with Repo. If the counterparty were to become insolvent, the absence of an agreement could reduce the legal position on appeal. As a general rule, any coupon payment on the underlying warranty during the duration of the sale/buyback is returned to the purchaser of the guarantee by adjusting the cash paid at the end of the sale/purchase. In a repo, the coupon is immediately passed on to the security vendor.

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