imported>Doug Williamson |
imported>Doug Williamson |
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| Collateral transformation is a key part of central banks' liquidity insurance role in financial markets.
| | ''Documentation risk'' |
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| | A covenant trigger is an event defined in borrowings documentation, which results in a breach of covenant. |
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| Collateral transformation allows participating banks to temporarily exchange less liquid forms of collateral, for collateral which is more liquid.
| | Also known as a 'covenant trigger event'. |
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| For example, a participant might exchange corporate bonds, which are less liquid, for high-quality and highly liquid sovereign securities (gilts).
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| | | == See also == |
| Examples of collateral transformation facilities include the Bank of England's:
| | *[[Breach of covenant]] |
| *Indexed Long Term Repo (ILTR) operations.
| | *[[Covenant]] |
| *Discount Window Facility (DWF).
| | *[[Credit event]] |
| *Contingent Term Repo Facility (CTRF).
| | *[[Documentation risk]] |
| | | *[[Event risk]] |
| | | *[[Ratings trigger]] |
| Collateral transformation is sometimes known as a 'liquidity upgrade'.
| | *[[Trigger event]] |
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| 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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| 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.
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| ==See also== | |
| *[[Bank of England]] | |
| *[[Central bank]]
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| *[[Collateral]]
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| *[[Contingent Term Repo Facility]]
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| *[[Discount Window Facility]]
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| *[[Gilts]]
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| *[[Indexed Long-Term Repo operations]]
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| *[[Liquidity]]
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| *[[Liquidity insurance]] | |
| *[[Money market]] | |
| *[[Operational Standing Facilities]] | |
| *[[Repo]] | |
| *[[Sterling Monetary Framework]] | |
| *[[Stress]] | |
