Some say banks have been demanding German bonds as collateral for financing and refusing to accept the bonds of other euro-zone countries.
ECONOMIST: Why are both Treasury bonds and gold performing so well?
If the ECB were to stop accepting Greek bonds as collateral for its lending to banks on the grounds that the bonds were in default, then Greece's banks, which were stuffed full of their government's bonds, would quickly run out of cash and collapse.
WSJ: European Disunion: Dithering at the Top Turned EU Crisis to Global Threat
NTT, Japan Tobacco and other companies as collateral for the bonds.
And the complex system of guarantees, new bonds and collateral that is to replace them?
FORBES: The Eurozone Deal: And Now the Wheels Start to Come Off
For promising to provide liquidity should capital suddenly flee, the banks charge Argentina a fee and demand Argentine bonds as collateral.
There were also concerns about Greece's finances, as the European Central Bank said that it would reject Greek government bonds as collateral.
It would also make it harder to use its bonds as collateral when borrowing cash, short term, from the European Central Bank.
Their opinions matter principally because the European Central Bank (ECB) says it will not accept Greek bonds as collateral if the agencies declare they are in default.
To make it easy for the Treasury to sell those bonds, Congress also amended the Federal Reserve Act to allow the Fed to hold government bonds as collateral.
That's because DVI can now substitute about 10% of any underperforming collateral that backs the bonds with new loans--and it's unclear whether that could continue if DVI stopped operating.
On the borrowing side, Mr. Frankel suggests the European Central Bank automatically stop accepting a country's bonds as collateral if its budget deficit or government debts exceed a certain level.
The ECB itself has been hinting that all of the main agencies (Fitch is the other biggie) would have to declare a default before it would stop accepting Greek bonds as collateral.
For example, JP Morgan (JPM) or Bank of America (BAC) took in Spanish bonds as collateral that MF Global had just purchased and made a loan that matured concurrently with the bond maturity date.
FORBES: Jon Corzine: Criminal Or Just Plain Old-Fashioned Stupid?
And crucially, that collateral (mostly national sovereign bonds), has been marked to current market value.
This also happens if there are credit downgrades on the bonds posted as collateral.
The first is that the Bank of England should extend its special liquidity scheme and lend banks directly whatever they need, accepting more mortgages, or mortgage-backed bonds, as collateral.
Daniel Gros of the Centre for European Policy Studies and Thomas Mayer of Deutsche Bank think the EFSF should be registered as a bank and allowed to borrow from the ECB, using the government bonds it buys as collateral.
My first guess for the source of such collateral would be US and UK government bonds.
In those days U.S. Treasury bills and bonds were not acceptable as collateral for note issuance at the reserve banks.
In return, the borrower pays less than the going rate for its money, reflecting the scarcity of the bonds it is posting as collateral.
The rumored incentives include preferential status for agreeable parties, higher coupon payments should they agree to roll bonds over and the payment of collateral as a token of good faith.
FORBES: Return Of Greek Salad Days Lifts Euro, Piques Risk Appetite
When your MBS or junk bonds are no longer accepted as collateral you have to dig deep into the vault and come up with something that is accepted, like gold or silver.
FORBES: Gold Inches Up As Goldbugs Seek Reasons For Historic Rout
Banks can present any government bonds to the European Central Bank as collateral against borrowing.
Finnish lawmakers agreed with Athens that if Finland agreed to provide new loans it must first receive 20% collateral which it would invest in AAA-rated bonds.
And fourth, the European Central Bank would take losses on its reserves of Irish bank bonds and those that it is holding as collateral.
The package allows Norwegian banks to swap toxic debt products like mortgage-backed securities for new government bonds, which can then be used as collateral for borrowing from the central bank.
But compared with Western banks, which hold lots of esoteric securities, its assets are skewed towards bonds and paper that can be used as collateral to borrow from the Central Bank, lowering funding risk.
Some say they are slashing trading commissions and loan fees and trimming collateral requirements for margin loans made to buy more stocks, bonds, commodities and currencies.
European authorities need to avoid a further sovereign credit rating downgrade of Greece, which would put it in default, as this would make Greek bonds no longer good enough to be held as collateral by the European Central Bank.
FORBES: Voluntary Greek Debt Restructuring Still Constitutes Default, S&P Says
应用推荐