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5. Short-Term Funding Alternatives Available to Banks

h. describe short-term funding alternatives available to banks;

## i. describe repurchase agreements (repos) and the risks associated with them.

What are four different short-term funding sources available to banks? - Retail deposits - Central bank funds - Interbank funds - loans and deposits between banks - Large denomination negotiable certificates of deposit

What is a repurchase agreement? A repurchase agreement is the sale of a security with a commitment by the seller to buy the same security back from the purchaser at a specified price at a designated future date. It is actually a collateralized loan.

In regards to bank loans, what is an overnight repo? What is a term repo? A loan for one day is called an overnight repo. A loan for more than one day is called a term repo.

What is a reverse purchase agreement? From a dealer’s perspective, if it is lending cash, the repo is then referred to as a reverse repurchase agreement.

What is the repo margin? The difference between the market value of the security used as collateral and the value of the loan is the repo margin.