Collateral in Banking

In message , snipped-for-privacy@gmail.com writes

This sounds like an american type question.

I cant answer the question as it has been posed but can give some help as follows :

"Collateral" has a different meaning to americans than in UK. In UK collateral security is security deposited by parties not in exactly the same right as the borrowers. I.e. A borrows dosh secured by the deposit of shares owned by A&B. This would be 'collateral' security. The other type is 'direct' security in which the borrowers and the depositors of the security are in the same right, i.e. A&B borrow the dosh and A&B deposit the security.

A 'pledge' is a promise. The term is usually used by pawnbrokers.

'repo' has loads of meanings and is generally only used in UK as the name used for the default rate of interest used by a central bank when lending in last resort by the discounting of bills.

Thanks for your help. I'm talking in terms of collateral security. (and more European than U.S.) Specifically regarding central banks and the collateral counterparties provide.

This is the definition the ECB site gives for collateral: "Assets pledged (e.g. by credit institutions with central banks) as a guarantee for the repayment of loans, as well as assets sold (e.g. to central banks by credit institutions) as part of repurchase agreements (repos)."

So am I right in saying that the Central Bank doesn't actually take posession of the pledged collateral from the counterparty?

In message , snipped-for-privacy@gmail.com writes

Depends on the nature of the assets. 'Paper assets' i.e. government bills, etc., will likely by physically held by a custodian on behalf of the pledgee. Assets such as 'gold' will remain in one place and merely be held to the pledgee's order= and a document of title held by the ECB.