FRM: Repo (repurchase agreement)

[@cristoux]

These videos are forever useful, here I am 10 years after the video was published. Thank you.

[@Call_me_nothing_OK]

my god after 14 years still it's able to explain better then my sir!

[@t8a8era]

Every video is of such a high quality. The visuals are awesome. Thank you so much.

[@bionicturtle]

@LuvLondon2010 thank you for your kind encouragement, it is much appreciated...

[@youthised58]

NOW I understand it. Great video!

[@bammbamm12]

I understood it up to about the 3:30 mark. Why did banks have to sell their assets? And what do you mean that it further put downward pressure on prices? What prices? The price of what?

[@bionicturtle]

Thanks for the kind feedback on the repo video!

[@talebi818]

you will be the soul reason for me enjoying finance great vids as always

[@btsofohio]

Really fantastic videos. Thanks David!

[@Adrian-jf6vt]

and in 2021 i find this vids thanks dude

[@alexdu9009]

a question about REIT's exposure to counter part please. Who determine the fair market value of the mortgage assets? Can the counter parties/lenders take ownership of the pledge assets if counter party solely determine the assets value is below the loan lend to the REIT? much appreciate your response.

[@leightonjulye]

overnight reverse repurchase agreement; repo is a secured loan. In August of 2007, repo lenders increased haircuts (initial margin) on repo transactions. The led to a run on the shadow banking system.

[@a.w.qureshi]

You are making a mistake. Buyer and Seller are wrongly used. Borrower is the Seller and Lender is the Buyer

[@bionicturtle]

Yes, in retrospect I agree with you. I can't recall my source at the time (this video is 8 years old) but I think the "seller" enters the repo (selling stock to borrow cash) and the "buyer" enters a REVERSE repo (paying cash as the lender in exchange for the securities). Thank you!

[@chingkui]

Why isn't the borrowed fund an asset to the bank? Why is it a liability? For example, in normal time, the bank's bond is its asset, it uses it as collateral to borrow money, and it transfer this asset to the lender in exchange for cash, which becomes its asset, so on the balance sheet, the bond is gone and the cash becomes its asset. Which part am I wrong in understanding REPO?

[@hebaelrify6676]

Eric Lee It will balance the face value of the bond that will be listed under assets, i.e 100 under Assets for the pledged bond and 80 under Liabilities ST for the commitment to purchase back the same bond

[@hebaelrify6676]

Eric Lee and the difference 20 is interest expense.

[@LuvLondon2010]

all your videos are great! thank you! such a great help! ;)

[@gmartirosyan]

WOW superb!!! I didnt know about august 2007!

[@matthewparker4927]

Awesome! Very Clear!

[@Geotubest]

Question David if I may and hope your'e around to answer (or anyone else out there if they can): Okay, for example, I (a bank) borrow $80 based as a result of my providing a rather risky asset currently valued at $100 (i.e. a $20 haircut). So when I (the bank) pay back the $80 I borrowed, do I get my full $100 collateral back from the lender? Or do I pay some sort of interest charge to the lender for the privilege of borrowing the funds for the given time period (i.e. say, I might get back only $99 of collateral value back (i.e. pay $1 interest). I'm trying to understand what's in it for the lender to incentivize them to enter into the loan. Thanks much.

[@bionicturtle]

Thank you for watching! If you do not get an answer here, I would suggest posting your question in our forum. David and many other members answer questions like this in our forum daily. Here is the link to our forum: www.bionicturtle.com/forum/. Nicole Bionic Turtle, CAO

[@Imran-ck5kb]

You pay interest back. You come into agreement that you borrowed $80 but have to buy back the collateral for $90. The collateral will be used by the lender if the borrower defaults and can't buy it back.

[@hellohereami913]

So we are fucked then?

[@raghu007nair]

Thanks.........

[@alexolinger2958]

totally get it

[@RJ5138]

great explanation! Thx a lot! :)

[@fvveb2141]

i don't understand