Reverse Repurchase Agreement — Lending Cash Against Securities Collateral
Recording a reverse repo where the broker-dealer lends cash and receives securities as collateral — earning the repo spread as interest income.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Securities Purchased Under Agreements to Resell (Reverse Repo Asset) | Asset (+) | 1,800,000,000.00 | - |
| Cash (Lent Against Securities Collateral) | Asset (-) | - | 1,800,000,000.00 |
💡 Accountant's Note
The reverse repo is the exact mirror of the repo — the broker-dealer lends cash and receives securities as collateral, earning the reverse repo rate as interest income. Securities received are NOT recognized as assets (the counterparty hasn't derecognized them). Most Master Repurchase Agreements grant the right to re-pledge received securities (rehypothecation) — using them as collateral in the firm's own repos. This means the same securities can appear across multiple balance sheets simultaneously, amplifying system-wide leverage — a structural vulnerability exposed in 2008. Repos and reverse repos may be presented net on the balance sheet only if rigorous ASC 210-20 criteria are met (same counterparty, same maturity, legally enforceable offset right, intent to net).
Practitioner & Systems Framework
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The net repo/reverse repo position (gross repos out minus gross reverse repos in) defines the firm's net secured funding gap. Gross balances can be 80–90% larger than net — understanding this reconciliation is essential for analyzing broker-dealer leverage. The right to re-pledge received securities must be disclosed under ASC 860.
⚠️ Audit Flags
Auditors test netting criteria — improper netting understates gross balance sheet leverage. Legal enforceability of offset rights in bankruptcy (across all relevant jurisdictions) is the critical test. Re-pledge rights for received securities must be properly disclosed and tracked.
📄 Required Documentation
Master Repurchase Agreement, reverse repo confirmations, securities received as collateral (CUSIP, FV), re-pledge rights analysis, ASC 210-20 netting criteria assessment, gross-to-net balance reconciliation, and counterparty credit quality analysis.
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