Banks Use Repurchase Agreements To


In many cases, if the collateral loses value, a margin call may take effect to ask the borrower to change the securities offered. In situations where it seems likely that the value of the security may increase and the creditor may not resell it to the borrower, sub-protection may be used to mitigate the risks. A Stanford Business School study showed that 90% of deposits were backed by ultra-secured US government bonds. In addition, deposits accounted for only $400 billion of the $2.3 trillion in money market fund assets. The researchers concluded that the liquidity crisis was occurring in the asset-backed commercial paper market. When the underlying assets lost value, banks held on to securities that no one wanted. He withdrew his capital and caused the financial crisis. Repo is a form of secured loan. .


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