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> Banks borrowing against Treasuries is almost entirely dictated by liquidity, not solvency. Can you unpack/explain this claim further?
by jey 7y ago
> Banks borrowing against Treasuries is almost entirely dictated by liquidity, not solvency.
Can you unpack/explain this claim further?
- whatok 7y agoSolvency = credit risk in this case. If my counterparty doesn't pay me back, I can just liquidate the collateral which in this case are Treasuries. Given that these are overnight transactions, I'm probably not exposed to too much price volatility if I had to. People aren't worried about getting their money back. There just isn't enough money floating around to lend out.