The New York Fed claims that since the credit crisis began banks have provided a wide variety of collateral, including Treasuries, Federal agency bonds and other mortgage backed securities, the FT reported.
LONDON (Reuters) - More than half the collateral backing cash advances by the Federal Reserve is in the form of loans rather than bonds and other securities, the Financial Times reported on Monday, citing the New York Fed.
The New York Fed claims that since the credit crisis began banks have provided a wide variety of collateral, including Treasuries, Federal agency bonds and other mortgage backed securities, the FT reported.
But the high proportion of loans being used as collateral suggests smaller banks, who have fewer securities to post with the central bank, are increasingly active users of the Fed's liquidity support facilities, the FT said.
The FT said that since the interbank lending crisis blew up last August the Fed has been willing to take on more illiquid assets as collateral.
!ADVERTISEMENT!But the central bank defends itself against criticism of greater risk-taking by insisting it is exposed only to credit risk and not liquidity risk; that it pools all the collateral from a given institution; and that the Fed's outstanding loans are heavily overcollateralized anyway.
(Reporting by Mike Dolan; Editing by Gerrard Raven)
