This is resulting in the so-called 'collateral crunch'; the intensity of demand for the highest quality collateral-eligible securities is starkly illustrated by their historically low yields.
We will hold monthly repo auctions to provide predictable and regular access to high-quality collateral in exchange for a very broad range of collateral.
The loans were improper, the lawsuit says, because the Fed made them without getting a pledge of high-quality collateral from A.I.G., as required by law.
Mr. Cox, the S.E.C. chairman, testified that Bear's failure on Thursday and Friday, March 13 and 14, to obtain financing even though it had what he called "high-quality collateral" was "an unprecedented occurrence".
By 2007 the huge growth in financial innovation had led many "shadow" banks to fund themselves with overnight "repo" loans backed by high-quality collateral or asset-backed commercial paper.
But new requirements in various spheres could mean that anything between $800 billion (Bank of England, 2012) and $4 trillion (BIS, 2013) of high-quality collateral is needed by banks and other financial-market participants.
The Casadys say the Fed erred in making the loans, because it needed a pledge of high-quality collateral from A.I.G. and instead got a big portfolio of impaired assets.
He said that when the Fed bailed out a nonbank, it was required to secure the loan with the same liquid, high-quality collateral it required when lending to a troubled bank.
The bank "was told that it was receiving high-quality collateral that was triple-A rated and that had been screened for safety, when in fact it received impaired loan collateral," said Robert J. Lane, a lawyer overseeing the case for M&T.
BLOOMBERG NEWS Banks in the Business of Transforming Collateral | To help clients comply with rules requiring them to post higher-quality collateral, banks including JPMorgan Chase and Bank of America "plan to let customers swap lower-rated securities that don't meet standards in return for a loan of Treasuries or similar holdings that do qualify," Bloomberg News reports.
