bank's liquidity - the ability of financial institutions to comply fully with all its obligations, clearly adhering to deadlines.In order to maintain standards at an appropriate level of liquidity credit institutions actively involve material resources from a variety of sources.Moreover, they can be not only inside but also outside.The source of funds on the domestic market of the Central Bank of Russia.He is responsible for the liquidity of the banking system.It's time to ask ourselves what the repo, because it appears the deal and in this situation the main tool of refinancing.
repos: definition
repurchase in English sounds like a repurchase agreement.This transaction, which consists of two parts: the securities purchase and resale at a specified time and at the agreed cost.Repos can be compared to lending, which act as collateral for the securities issued on the lender.The cost of credit, or discount - the difference between the initial cost of the sale and purchase of securities.Studying the question what repo must be considered a two-way nature of the mechanism.
Features transactions
The main advantage of the mechanism of repurchase transactions - a high rate of reliability.It may be noted availability and ease of technical implementation of the operation.The price of credit that are available on repo transactions is minimal.This is due to the almost complete absence of risk.If due to objective circumstances is not possible to implement the second part of the agreement, for example, the organization-borrower is unable to buy back the securities, the lender enters into the category of securities owner legally.
Features transactions
To understand what repo consider the basic characteristics and parameters of this category of transactions.You can select:
- term deal.
- type or composition of the collateral.
- discount.
Depending on the duration of these transactions are:
- Intraday, also known as overnight.They are no more than a day.
- Derivatives that have a fixed maturity.
- Open, which maturity date is not set.
In a situation where the first part of the agreement has already been completed, and the term of realization of the second part of the transaction has not yet expired, the repo action name.During the first part of the agreement and the open period, the second part of the REPO deal is called open.For urgent operations and overnight characterized by a fixed rate.For open positions with floating rate.
Consider the example of Russia that such repurchase.CBR provides funds to repurchase a period of 1 and 7 days, 3 and 12 months.Transactions for a period of 3 months and a year are not carried out systematically.Their implementation must be an individual decision of the Central Bank.Hence the conclusion that the repo transactions - it's just a short-term source of liquidity.
Repos in foreign currency in the commercial segment
repo transactions is often made between the Central Bank, which is the lender, on the one hand and the commercial bank, which takes on the role of the borrower, on the other hand.The transactions may take part and two commercial banks simultaneously.The rates in this situation is determined solely on the basis of the rates in the interbank market.They are bound to the terms of lending to the quality of the securities.REPO transaction in foreign currency between the Central Bank and credit companies can be carried out on the Moscow Stock Exchange, on the St. Petersburg stock exchange, within the framework of Bloomberg.To be eligible to participate in the auction, the financial institution must meet a number of criteria that are set indicating the CB.As security in all transactions with the Central Bank may make securities that are included in the Lombard list.They are considered to be highly reliable and liquid.Full Lombard list of securities each day is published in updated form on the official website of the regulator.
What papers are not accepted as collateral?
as collateral Central Bank only accepts securities that meet certain requirements.As a pledge can not speak:
- securities issued by the bank itself, which is the second party to the transaction.
- securities issued by any financial institution that has any partnerships with the Bank acting as the borrower under a repurchase transaction.
- Bonds have maturity of less than 2 days.
for each category of securities, the CBR, building on the duration of the repo, the primary sets, the maximum and minimum price levels, discounts.Discount appears in this situation as the difference between the purchase price and redemption price of the securities.With the primary discount rate is determined by the amount that the Central Bank provides credit institution for the first part of the agreement.The maximum and minimum price levels used to calculate the current discount rate for the entire term of the repo transactions.
direction providing liquidity auctions
To ensure liquidity of the banking system through the use of repurchase transactions, the Central Bank is practicing two main areas.Let's start with the conclusion of agreements, which are based on the repo auction.This trend is characterized by the presence of liquidity on the limit provided under the auction proceeds.The direction depends on the situation that exists on the Russian currency market, and the availability of a minimum interest rate.Each of the participants in the auction has the right to file an application where it is required to specify the repo rate, which may be either higher or equal to the minimum.Information on the results of the auction is published on the website of the CBR.Thus, the repo auction allows potential borrowers to compete for favorable conditions for partnership with the Central Bank of Russia.
Fixed rates
direction of partnership on the basis of fixed rates enables the central bank to attract material resources just for a day.The transaction referred to overnight.Rates are provided on fixed conditions, and thus it is an order of magnitude higher than the minimum.This category of partnership agreements implemented on a daily basis.
Over the past few years, the volume of capital that credit institutions involved in the repo auctions, systematically increases.This indicates that it is a mechanism of REPO in foreign currency currently acts as the dominant tool of liquidity of the domestic banking system, which is used for the purpose of refinancing the financial segment.
Disadvantages legal system
In accordance with the Civil Code of the Russian Federation currency repos is not classified as a separate category of transactions.At the level of legislation Partnership is perceived as committing two transactions at the same time (buying and selling) or as loans made under a certain type of security.
In history there are precedents when the repo recognized invalid.It hides the fact of secured lending.Once the transaction is recognized as invalid, the very repurchase lose all their advantages over the standard loan schemes.In litigation emphasis on the fact that the agreement to buy back the property it was clearly stated that it is the property and is a direct guarantee.
main difficulties with repo transactions
considering the fact that such a repurchase, it can be said that from a formal point of view, this is a simple set of transactions.In fact the mechanism used for the temporary provision of funds to the assignment of rights to certain assets for some time.Court decisions are mainly determined by the fact that the exchange repo has a striking resemblance to the pledge, therefore, it really is.As a result of this mismatch between reality and legislative standards, currency repos is not allowed in a civil turnover.The situation requires a significant legal adjustments.Problematic understand at the level of the arbitral tribunal on the issue of what the repo.CB though practicing affiliate scheme, but the risks for its implementation in terms of non-compliance by the parties with their obligations remain very high.
