Repurchase Agreements (Repo transactions)

Mechanics of repurchase agreements (repo transactions/loans)

Category:

Education

Tags:

• repurchase
• agreement
• repo
• transaction
• federal
• reserve

[MidgetPhilosopher]

LOL, wow. that was hilarious.. "For a reasonably low interest rate.... 10% a week..."

[tassov055]

actually you confused reverse repo vs repo. You would have a reverse, and "I" in the video would have a repo...

[taragreene7]

Funny _and_ informative, well done Sal!

[spyk316]

Why would the Fed feel insecure of shady dealings as you, as an individual did to enter a repo?

[lakerboy4lyfe]

keep it up sal!

[UstinovDmitry]

Great video, teaching people who have no clue in finance. I liked it. Just little confusing about Repo-sounds like a repossession

[MrPlender]

@cr1138 It goes both ways.The fed operates repos (from the banks' perspective) to increase reserves temporarily and boost the deposit multiplier depending on the length of the loan (anywhere between overnight and 65 days). As with reverse repos (from the banks' perspective, not the Fed's) reserves are reduced temporarily and interest rates increase as reserve demand increases which will reverberate throughout the banking system. Repo transactions form a strong basis of open market operations.

[MrPlender]

@wirlybird540 I know it's confusing, however you're both right. When you think about the repo in buyer and seller terms then the seller is purchasing a repo and the buyer a reverse repo. However, when we talk about the federal reserve operating a "repo" it actually means a reverse repo from the Federal Reserve's point of you. If you don't believe me I'll quote Wikipedia: "Thus the Fed describes these transactions from the counterparty's viewpoint rather than from their own viewpoint."

[wirlybird540]

hi sal, love all your videos.. in this case im confused because all other sources indicate that Repo Buyer is the person selling the securities and buying them again in the Future... While you say the money lender is the repo buyer. Can you confirm this?

[cjd48]

Thank you!

[KLguy133]

Hi Khan ,

Nice Vid , keep em coming but Doesn't the bank run down it's own assets temporarily before it settles the repo and buys back it's treasuries ?

If it was a bad bank as you say then wouldn't that make the situation worse at least in the short run?