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.
Such competition would bring about better ways of analyzing securities and would allow more open information about their makeup, especially the real worth of the securities' collateral.
Once a municipal bond is refinanced, (prerefunded) the issuer uses the proceeds of the new issue and purchases US Treasury securities (collateral) that are used to pay the interest and principal on the original, more expensive debt until maturity or the call date, whichever the escrow agreement states.
And fund managers should reinvest the collateral only in absolutely safe securities.
Investment banks have already rushed to reduce their reliance on overnight funding in repo markets, after lenders lost faith in the securities used as collateral.
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Banks have also securitised better-quality loans (ie, packaged them up along with the collateral that backs them as tradable securities).
In Diebold's case, like many others, his 401(k) plan appears to be contractually on the hook for any decline in the value of collateral received in exchange for the securities it lent out.
Yet the securities were pledged as collateral.
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Some of that collateral, now mostly asset-backed securities, is so illiquid that it has yet to be unwound.
Landow took out a 90% loan against securities he put up as collateral.
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Repos increase bank interconnectedness, the thinking goes, because the same securities end up being used as collateral by multiple institutions.
The analyst even said that the extension is a positive in that the holders of the notes are continuing to work with the company on the liquidation of the underlying mortgage-backed securities, which are serving as collateral for the debt.
It judged that for now, expanding its loans to banks and securities dealers, and broadening the collateral it accepts from banks, addresses the crisis better than looser monetary policy would, though it may yet decide further rate cuts are necessary.
It also widened the category of assets banks could advance as collateral to include top-rated mortgage-backed securities.
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.
Though Draghi didn't spell out what policy changes could emerge, analysts say the bank could look at ways to encourage lending to midsize companies that could allow banks to bundle small business loans as securities and park them at the ECB as collateral for central bank loans.
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.
The securities the fund holds are rarely publicly traded and often are subject to collateral agreements that contain terms that must be considered in establishing their value.
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Americans running distressed-securities investment boutiques pressed the trustee to sue its half-owner over the collateral guarantee.
Mortgage backed securities backed by Fannie Mae and Freddie Mac were once upon a time considered excellent collateral, as good as Treasuries.
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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.
John Bella, managing director in ABS at Fitch Ratings, said net losses on auto asset-backed securities have fallen steadily since the crisis four years ago, and the deals are now backed by stronger collateral, or loans made to so-called prime borrowers.
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