Even borrowers with stellar credit and cash collateral are experiencing a more rigid lending process.
The short-sellers borrow the shares, replace them with cash collateral and promise both to return the shares on demand and cover dividends paid out in the meantime.
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At OppenheimerFunds, cash collateral generated by securities lending may be invested in a fund run by the parent company but not registered with the Securities and Exchange Commission.
All big banks require hedge funds to back up their swaps with cash collateral that is adjusted daily, says Kathryn Dick, deputy comptroller for credit and market risk at the Office of the Comptroller of the Currency.
Other important terms to consider include whether there are liens on the IP (a negative), Material Adverse Change clauses, cash-collateral elements (where a bank can sweep the account), and other particular covenants.
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Unfortunately, however, both cash flows and collateral values are themselves distorted by credit bubbles.
"There are not that many borrowers who have sufficient collateral and cash flow who want to borrow money, " says Beal.
Moreover, the Fed's operation on August 10th was also slightly unorthodox, as the collateral for cash loans was entirely in mortgage-backed securities, albeit ones guaranteed by federal agencies.
It would also make it harder to use its bonds as collateral when borrowing cash, short term, from the European Central Bank.
The one bank that was a bit more frank that access to liquidity is an issue insists that the Bank of England's new and unconventional scheme to provide cash - the Extended Collateral Term Repo - will rectify things.
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Lehman had plenty of collateral to pledge for cash from the Fed to stop the run.
Customers were fleeing, counterparties wanted more collateral, and a cash squeeze was starting.
As a group, the pure-play investment banks have relied heavily on short-term funding, particularly repo transactions in which counterparties take collateral as security against the cash they lend.
Usually this collateral is in the form of cash payments and up-front deposits made to establish the card.
First, AIG used bailout cash it received from the government to post collateral that Goldman was allowed to keep.
Andrew Crockett, a former head of the Bank for International Settlements, thinks central banks should broaden the range of collateral they accept when they supply cash to commercial banks.
Lay put up a chunk of his Enron stock and a smaller percentage of his more liquid assets (cash and real estate, for example) as collateral for the loans.
The latter collateral will come into play only where the cash surrender value of the policy is insufficient to meet the debt obligation.
Banks can deposit all kinds of collateral with euro-area central banks in return for cash without paying a penalty rate, while, until the latest joint operation, the Fed still demanded a penalty rate as did the Bank of England, which also accepted only high-quality collateral.
The discount facility bypasses the money markets and allows a far wider range of depository institutions to borrow cash directly from the Fed, with a broader range of assets as collateral.
The European Central Bank must avoid creating an incentive for banks to load up on Greek debt and then offer it as collateral for liquidity from the ECB, by (controversially) offering less cash for government bonds with lower credit ratings.
The cash took the form of either banknotes or a credit balance at the Federal Reserve bank that held the collateral.
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