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They are there to be used by banks to access money and high quality collateral.
The bank's head of structured credit for the Americas said in that release that investors wanted "better quality collateral".
Within weeks of the rating, S.& P. analysts e-mailed each other to say that some of the bonds that went in it were not exactly quality collateral.
Because of the long lag between when the security is typically sold and when the quality is revealed, high reputation firms often have an incentive to cash in on the firm's reputation by bundling low quality collateral and selling it as purportedly high quality securities.
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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.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com