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Markets - Money marketsTheory 3 - Repo operations - who is repossessing what?A 'repo' is a sale and repurchase agreement. It is effectively agreeing to sell something to someone, but guaranteeing you will buy it back at some given point in the future. In the money markets, repos are done by the banks and other financial institutions, with the Bank of England. When the banks are short of cash they sell some of their assets to the Bank of England in exchange for cash, but at the same time agree to buy them back at a later date (usually a fortnight). The assets that the banks are usually offering for repo are gilt-edged securities, Treasury bills and certain other bills and bonds. This process is also known as open market operations. The Bank of England do this because they can then control the amount of liquidity in the system, but particularly so that they can maintain the level of interest rates set by the Monetary Policy Committee. This process of offering repos goes on every day. |
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