Banks use a number of techniques to reduce the credit risks to which they are exposed. For example, exposures may be secured by first-priority exposures, in whole or in part with cash or securities, credit risk may be secured by a third party, or a bank may purchase a credit derivative to offset different forms of credit risk. In addition, banks may agree on net loans against deposits of the same counterparty1. 1. the simple approach of replacing the risk weighting of the counterparty with the risk weighting of the collateral part of the exposure (usually subject to a floor of 20%); or the solvency of these “investment firms” is not positively correlated with the credit risk of the exposures for which they have provided collateral. When an insurance undertaking negotiates a reverse-pension agreement, it buys securities from a counterparty (e.g. B a bank) in exchange for cash (most of the time) or guarantees. At the end of the agreement – usually on a working day, although it can last up to 12 months – the insurance company resells the same (or essentially the same) securities to the counterparty at a predefined price. Reverse rest are recorded as guaranteed credits.
The amount paid by the insurer for the securities acquired is considered an investment of the insurer. In addition, where exposure and collateral is held in different currencies, banks must apply an additional discount on the amount of the volatility-adjusted collateral, in accordance with CRE22.52 and CRE22.82 to CRE22.83, in order to take into account possible future exchange rate fluctuations. The main difference between a maturity and an open repo is the time between the sale and redemption of the securities. As in many other corners of finance, pensions include terminology that is not common elsewhere. One of the most common terms in the repo area is “leg”. There are different types of legs: for example, the part of the retirement transaction in which the security is originally sold is sometimes referred to as the “starting leg”, while the next redemption is the “narrow part”. These terms are sometimes exchanged as “near leg” or “distant leg”. . . .