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.
| | Repurchase agreement. |
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| Collateral transformation allows participating banks to temporarily exchange less liquid forms of collateral, for collateral which is more liquid.
| | == See also == |
| | * [[Repo rate]] |
| | * [[Repurchase agreement]] |
| | * [[Reverse repo rate]] |
| | * [[ERC]] |
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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).
| | [[Category:Liquidity_management]] |
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| Examples of collateral transformation facilities include the Bank of England's:
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| *Indexed Long Term Repo (ILTR) operations.
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| *Discount Window Facility (DWF).
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| *Contingent Term Repo Facility (CTRF).
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| Collateral transformation is sometimes known as a 'liquidity upgrade'.
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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==
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| *[[Bank of England]]
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| *[[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]]
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| *[[Money market]]
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| *[[Operational Standing Facilities]]
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| *[[Repo]]
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| *[[Sterling Monetary Framework]]
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| *[[Stress]]
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