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Transactions involving the lending of securities or funding secured by securities.
In a repurchase agreement, one party sells securities and agrees to repurchase them later at an agreed price; economically it commonly provides secured funding. In securities lending, securities are transferred with an obligation to return equivalent securities, usually against collateral and a fee. Valuation changes can trigger margin calls, and both the borrower and collateral need to be assessed.
Imagine a dealer obtaining €950,000 by entering a repo against securities worth €1 million, with an agreement to repurchase them for €951,000 after the stated term. The €1,000 difference represents financing cost in this simplified transaction. If the collateral value falls, the agreement may require the dealer to post more. Those obligations make the arrangement different from an unrestricted permanent sale.
ECB survey finds easier wholesale credit terms, with financing costs mixed