The desk selects profit proposals on a competitive basis. Each distributor is asked to provide the prices it is willing to pay for the agreements in relation to different types of guarantees. The three types of general guarantees, or GC that the Fed accepts, are marketable U.S. treasury securities (including strips and TIPS), certain direct liabilities of U.S. agencies, and certain non-agency (or liabilities, often referred to as MBS). Pension agreements have a risk profile similar to all securities lending transactions. That is, they are relatively safe transactions, since they are secured credits, which are generally used as custodians by a third party. Deposits are traditionally used as a form of secured loan and have been treated as such tax-wise. However, modern repurchase agreements often allow the lender to sell the collateral provided as collateral and replace an identical guarantee when buying back. [14] In this way, the lender will act as a borrower of securities, and the repurchase agreement can be used to take a short position in the guarantee, as could a securities loan be used. [15] When the Federal Reserve`s open market committee intervenes in open market transactions, pension transactions add reserves to the banking system and withdraw them after a specified period; Rest first reverses the flow reserves, then add them again. This instrument can also be used to stabilize interest rates and the Federal Reserve has used it to adjust the policy rate to the target rate. [16] Reverse repurchase agreements (RRPs) are the end of the purchaser of a pension contract.

These financial instruments are also called secured loans, buy-back/sale loans and loans for sale/buyback. In the United States, standard and reverse agreements are the most commonly used instruments for the Federal Reserve`s open operations. Among the instruments used by the Federal Reserve System to achieve its monetary policy objectives is the temporary addition or subtraction of reserve assets by redemption and reverse retirement transactions on the open market. These transactions have short-term effects and self-return on bank reserves. As a result, pension and pension agreements are called secured loans, because a group of securities – usually U.S. government bonds – insures the short-term credit contract (as collateral). Thus, in financial statements and balance sheets, repurchase agreements are generally recorded as credits in the debt or deficit column. An RRP differs from Buy/Sell Backs in a simple but clear way. Purchase/sale agreements document each transaction separately and provide a clear separation in each transaction.

In this way, each transaction can be legally isolated, without the other transaction being fully feasible. On the other hand, the RRPs have legally documented every step of the agreement under the same treaty and guarantee availability and right at every stage of the agreement. Finally, the warranty in an RRP, although the security is essentially acquired, usually never changes the physical location or actual property.