Collateral transformation and Counterparty risk: Difference between pages

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Collateral transformation is a key part of central banks' liquidity insurance role in financial markets.
The risk to each party to a contract that the counterparty will not meet its contractual obligations, whether they are unable, or simply unwilling, to do so.




Collateral transformation allows participating banks to temporarily exchange less liquid forms of collateral, for collateral which is more liquid.
== See also ==
*[[CCR]]
*[[Credit risk]]
*[[Risk]]
*[[Guide to risk management]]
*[[Cash in the new post-crisis world]]
*[[Putting a limit on losses]]


For example, a participant might exchange corporate bonds, which are less liquid, for high-quality and highly liquid sovereign securities (gilts).


===Other links===
*[http://www.treasurers.org/node/8928 Treasury essentials: Counterparty risk, The Treasurer, April 2013]


Examples of collateral transformation facilities include the Bank of England's:
*[http://www.treasurers.org/node/7758 Counterparty credit risk, Will Spinney, ACT 2012]
*Discount Window Facility (DWF).
*Contingent Term Repo Facility (CTRF).


 
[[Category:Manage_risks]]
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]]
*[[Liquidity]]
*[[Liquidity insurance]]
*[[Money market]]
*[[Operational Standing Facilities]]
*[[Repo]]
*[[Sterling Monetary Framework]]
*[[Stress]]
 
[[Category:The_business_context]]
[[Category:Financial_products_and_markets]]

Revision as of 20:52, 4 August 2016

The risk to each party to a contract that the counterparty will not meet its contractual obligations, whether they are unable, or simply unwilling, to do so.


See also


Other links