Download Banks` gilt repo transactions

Banks’ gilt repo transactions
By Jonathan Bailey
Tel: 0171 601 4068
This article describes the sale and repurchase agreement (repo and reverse repo) data collected on
banks’ monthly balance sheets, as reported in Table 11.1, and the data collected via a specialised repo
survey, as reported in Table 22. It is important to distinguish between the two, since they are derived
from separate sources, have different coverage, and are collected for different purposes. Consequently,
the results can differ considerably. The purpose of this article is to draw the distinction between the two
sources of gilt repo statistics, and to explain why the results differ.
and stock lending market, by a special voluntary repo
Repo data sources
return (Form RSL) for the Gilt-Edged and Money Markets
The figures presented in both the tables are derived from
Division of the Bank. This quarterly return, giving results
Bank of England returns. Data in Table 11.1 are supplied
relating to the end of February, May, August and
by the 480 banks operating in the UK, on the balance sheet
November each year, collects detailed information on the
return (Form BT). This is completed monthly by about
gilt repo market, including value and volume of repos
370 banks, and quarterly by the remainder: data for the
traded as well as outstanding positions. Stock lending is
quarterly banks are interpolated for the intervening
also covered by this return. The results are used to analyse
months. It is a statistical return, and the results are used,
developments in the gilt repo market. An article in the
in aggregate form, mainly for monetary policy purposes.
Bank’s Quarterly Bulletin (May 1996) gives more details
on the use of these statistics.
The gilt repo figures presented in Table 22, on the other
hand, are collected from major participants in the gilt repo
Repos and reverse repos: a definition
Liabilities under sale and repurchase agreements (repos) comprise cash receipts arising from the sale of securities or other
assets for a finite period with a commitment to repurchase. When an institution undertakes a repo it sells securities to another
party (usually a bank or other financial institution) with an agreement to repurchase equivalent securities at a specified price
on a particular date. Thus a repo is, in economic terms, a kind of secured deposit. If a bank undertakes a reverse repo, the
position of the parties is reversed. Thus in economic terms a reverse repo is a kind of secured loan.
This article covers only gilt repos, which are those transactions covered by the Gilt Repo Legal Agreement, or any
substantially similar legal agreement, where gilts are sold with a commitment to repurchase equivalent securities at a future
date. To be “substantially similar” the agreement needs to embrace all key features of the Gilt Repo Legal Agreement; for
example, re-margining, netting in the event of default, and provisions setting out the rights and obligations of both parties.
Sell/buy back and buy/sell back transactions, defined as “undocumented” repos conducted without an overarching legal
agreement, are included under repos and reverse repos if they were conducted under the Gilt Repo Legal Agreement.
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Table A: Outstanding gilt repo and reverse repo positions of banks:
published in Bankstats, November 1998
Table 11.1 (a)
Repos
1996
1997
1998
(a)
February
May
August
November
February
May
August
November
February
May
August
Reverse
repos
18,069
24,234
28,863
31,910
35,361
47,183
47,131
48,800
62,850
58,865
67,817
15,028
17,865
24,932
29,007
30,152
48,327
52,200
50,343
63,715
59,406
69,264
£ millions
Table 22
Repos
Reverse repos
(banks only)
(banks only)
21,722
22,558
22,558
24,900
40,764
41,033
47,065
43,878
45,704
47,299
52,850
50,469
54,074
46,198
49,694
45,241
50,640
57,617
44,974
48,700
57,081
57,907
Gilt repos are described as repos of British Government Stocks in Table 11.1
The general pattern for total repos and reverse repos
Magnitude of differences
shown in Table A is that the figures in Bankstats Table 22
Table A shows the outstanding positions for gilt repos and
were greater than those in Table 11.1 for reporting periods
reverse repos as published in each table on a quarterly
until mid-1997. Since then the figures reported in Form
basis since February 1996, when the RSL was first
BT have generally been the greater. The individual banks
completed. The figures vary considerably, with neither
that contribute to both series have not, however, shown
source giving consistently higher or lower results than the
such a clear pattern.
other. In the earlier quarters the figures in Table 22 were
generally higher, but in more recent periods those from
The results suggest that the inclusion of intra-group
Table 11.1 have been the higher.
positions on the Form BT is a major reason for higher
figures in Table 11.1. For those banks reporting higher
Why the figures differ
figures on their Form BT than Form RSL at end-August
the inclusion of repos and reverse repos outstanding with
There are a number of possible causes of the differences.
other institutions within the parent group was quoted in
These are summarised in Table B.
explanation for over 90 per cent of the difference. The
inclusion of sell/buy backs within the broader definition of
It is impossible to quantify precisely the specific factors
repos on the Form BT was the reason given for the
contributing to the difference between outstanding repos
remaining differences where details were obtained.
reported on each form at every point in time. However, to
give an indication of the most likely causes of differences,
The fact that the Form RSL does not cover the smaller
we contacted a number of reporters completing both the
players, compared with the Form BT’s complete coverage,
RSL and the BT forms for end-August 1998. On the basis
is also an important reason for the figures in Table 11.1
of this evidence, we can suggest the most important
being higher than compared to Table 22. At end-August
reasons for the differences.
over 10 per cent of repos and reverse repos in Table 11.1
Table B: Differences between sources of outstanding repo and reverse repo
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positions for banks presented in Tables 11.1 and 22
Source return
Return type
Definition
Sample population (a)
Frequency
Response
Table 11.1
Table 22
Form BT
Balance sheet
Repos and reverse repos where there is a
firm commitment to repurchase at a fixed
price. Includes security
lending/borrowing, and buy/sell backs
Allows offsetting of credit and debit items
with the same customer in certain
circumstances
Includes intra-group repos
Only sterling gilts included
All banks operating in the UK, i.e. some
480 institutions
Form RSL
Specialist repo return
Transactions conducted under the Gilt
Repo Legal Agreement or equivalent
documentation
Monthly by about 370 banks. Quarterly by
remaining banks
100%
Coverage
All outstanding positions of banks
operating in the UK
Valuation basis
Cash consideration of securities
Data must be reported gross
Excludes intra-group transactions
Includes gilts denominated in any currency
Any bank operating in the UK which is
active on the gilt repo market. Returns are
currently received from some 45 banks
Quarterly, as at the end of February, May,
August and November
Completed returns received from between
37 and 47 banks since the form began in
February 1996
As for Table 11.1, but may include
positions held by non-resident offices of
banks operating in the UK
Market valuation of securities
(a)
Table 22 also includes data for other, non-bank, major players in the gilt repo market including gilt-edged market
makers, securities dealers, building societies and pension funds. However, only positions reported by banks, which
constitute about half of all reporters, are included in the comparisons here.
were reported by banks not included on the RSL sample.
August on Table 22 include at least £2 billion that is not
Accounting for some £8 billion of repos outstanding, this
included in the figures on Table 11.1.
factor is likely to be at least as important as the inclusion
of intra-group repos in boosting the figures reported on
The second factor is that institutions reporting the Form
Form BT.
RSL are permitted to include positions held by their nonresident offices. The Form BT specifically excludes these
Despite these factors which increase the Table 11.1
positions. This is allowed on the Form RSL because it
aggregates, many banks report higher positions on their
was thought initially that institutions might find it difficult
Form RSL, feeding into Table 22. Three main reasons
to split out the positions held by their UK offices from
have been identified to explain this. The first is that Form
those abroad. However, there is little evidence that such
RSL requires repos and reverse repos to be reported gross,
positions have been reported, and it is unlikely that this is
whereas Form BT allows balances to be reported net if
a significant factor.
certain conditions are met (including the existence of a
legal right of setoff,
and that both the balances are
denominated in the same currency).
The third factor, and the one most likely to have caused
This means that
the significantly higher Table 22 figures in 1996 and early
offsetting repo and reverse repo balances with the same
1997, is that banks may have reported the outstanding gilt
institution may not be reported on Form BT; on Form
repo positions of their non-bank subsidiaries on their RSL
RSL these are always included. It has been difficult to
return.
quantify this effect precisely, but the repo figures at end-
reported the repo positions of subsidiary securities dealers
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In particular, a number of banks may have
on their return. Since 1997 this effect has been minimised
analysis shown here is only intended to be indicative.
in two ways:
However, from even this limited information, it appears
that the inclusion in the RSL of balances relating to banks’
•
non-bank
non-bank subsidiaries has been mainly responsible for
subsidiaries have been brought onto the parent bank’s
significantly higher figures in Table 22 in the earlier
balance sheet, with the effect that their positions are
periods. There is also evidence that the inclusion on the
now also included on the BT return;
BT of intra-group transactions, and the wider sample of
many
securities
dealers
and
other
the Form BT, are the main reasons for Table 11.1 figures
•
compliance with reporting guidelines has been
being higher than those in Table 22 in more recent
tightened. Where banks have non-bank subsidiaries
quarters.
these now complete separate RSL returns in their own
name, and are not included in the “banks”
classification.
The contribution of each of these factors to the overall
difference can differ from one quarter to another, and the
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