Repurchase Agreement Credit Risk

Repurchase Agreement Credit Risk

Despite the similarities with secured loans, deposits are actual purchases. However, since the purchaser only temporarily owns the guarantee, these agreements are often considered loans for tax and accounting purposes. In the event of bankruptcy, pension investors can, in most cases, sell their assets. This is another difference between pension credits and secured loans; For most secured loans, insolvent investors would remain automatic. The cash paid on the initial sale of securities and the money paid at the time of the repurchase depend on the value and type of guarantee associated with the pension. In the case of a loan. B, both values must take into account the own price and the value of the interest accrued on the loan. Where banks have legally enforceable clearing agreements for loans and deposits that meet the conditions set out in CRE22.68 and CRE22.69, they can calculate capital requirements based on the net credit positions covered in this paragraph. In general, the credit risk associated with pension transactions depends on many factors, including the terms of the transaction, the liquidity of the security, the specifics of the counterparties concerned and much more. except for the non-payment of money owed in connection with the credit guarantee contract, which is irrevocable by a buyer of the protection; For other approaches, the credit guarantee agreement can only be recognized in the event of a maturity conflict if the initial duration of the agreement is greater than or equal to one year and its residual duration is greater than or equal to three months. In such cases, credit risk mitigation may be recognized in part as shown below in CRE22.13. If the losses are shared on a pro-rata basis between the bank and the guarantor bet passu, a capital relief is granted on a proportional basis, i.e.

the protected part of the exposure is subject to the treatment applicable to eligible credit guarantees/derivatives, while the rest is considered unsecured. Issuer risk weighting (only for government-issued securities, banks with appropriate supervisory authority can use the internal model method for counterparty credit risk (CRE53) to determine the amount of exposure taking into account collateral.