Collateral transformation: Difference between revisions
imported>Doug Williamson (Create the page. Source: Bank of England Red Book June 2015 p3-4.) |
imported>Doug Williamson (Add links.) |
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Examples of collateral transformation facilities include the Bank of England's: | Examples of collateral transformation facilities include the Bank of England's: | ||
*Discount Window Facility (DWF). | *Discount Window Facility (DWF). | ||
*Contingent Term Repo Facility (CTRF). | *Contingent Term Repo Facility (CTRF). | ||
Collateral transformation is | Collateral transformation is one type of 'liquidity upgrade'. | ||
The purpose is normally to enable a participating bank which uses the facility to go on to borrow in the private market, against the improved security of the temporarily 'upgraded' collateral. | The purpose is normally to enable a participating bank which uses the facility to go on to borrow in the private market, against the improved security of the temporarily 'upgraded' collateral. | ||
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*[[Gilts]] | *[[Gilts]] | ||
*[[Indexed Long-Term Repo operations]] | *[[Indexed Long-Term Repo operations]] | ||
*[[Interest rate transformation]] | |||
*[[Liquidity]] | *[[Liquidity]] | ||
*[[Liquidity insurance]] | *[[Liquidity insurance]] | ||
*[[Maturity transformation]] | |||
*[[Money market]] | *[[Money market]] | ||
*[[Operational Standing Facilities]] | *[[Operational Standing Facilities]] | ||
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*[[Sterling Monetary Framework]] | *[[Sterling Monetary Framework]] | ||
*[[Stress]] | *[[Stress]] | ||
*[[Transformation]] | |||
[[Category:The_business_context]] | |||
[[Category:Financial_products_and_markets]] | |||
Latest revision as of 08:27, 28 September 2022
Collateral transformation is a key part of central banks' liquidity insurance role in financial markets.
Collateral transformation allows participating banks to temporarily exchange less liquid forms of collateral, for collateral which is more liquid.
For example, a participant might exchange corporate bonds, which are less liquid, for high-quality and highly liquid sovereign securities (gilts).
Examples of collateral transformation facilities include the Bank of England's:
- Discount Window Facility (DWF).
- Contingent Term Repo Facility (CTRF).
Collateral transformation is one type of 'liquidity upgrade'.
The purpose is normally to enable a participating bank which uses the facility to go on to borrow in the private market, against the improved security of the temporarily 'upgraded' collateral.
The fees and other terms attached to the central bank's facilities are set at levels designed to ensure that participants use them as a back-stop to private market liquidity management, rather than using the central bank's facilities routinely.
See also
- Bank of England
- Central bank
- Collateral
- Contingent Term Repo Facility
- Discount Window Facility
- Gilts
- Indexed Long-Term Repo operations
- Interest rate transformation
- Liquidity
- Liquidity insurance
- Maturity transformation
- Money market
- Operational Standing Facilities
- Repo
- Sterling Monetary Framework
- Stress
- Transformation
