What is a Repo 105 transaction?

Repo 105 was a repurchase agreement that a company used to gain funds via short-term loans that are backed by collateral. Under Repo 105, if a company had the ability to repurchase the assets, it was considered a financing transaction and if it did not, it would be a sale.

Why did Lehman use the Repo 105 transactions?

Lehman’s Defense of Repo 105 The bank used Repo to lower its net leverage ratio and mislead rating agencies so that the agencies would not give the company a poor rating that would portray a negative image to its stakeholders.

What is repo in banking?

Definition: Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation.

Who created Repo 105?

Lehman Brothers’
Repo 105 is Lehman Brothers’ name for an accounting maneuver that it used where a short-term repurchase agreement is classified as a sale.

What is repo used for?

A repurchase agreement (repo) is a short-term secured loan: one party sells securities to another and agrees to repurchase those securities later at a higher price.

What is the purpose of a repo?

While the purpose of the repo is to borrow money, it is not technically a loan: Ownership of the securities involved actually passes back and forth between the parties involved. Nevertheless, these are very short-term transactions with a guarantee of repurchase.

Is the repo market?

The repo market is essentially a two-way intersection, with cash on one side and Treasury securities on the other. They’re both trying to get to the other side. One firm sells securities to a second institution and agrees to purchase back those assets for a higher price by a certain date, typically overnight.