Understanding Borrower-In-Custody (BIC) Collateral: A Comprehensive Guide
Definition & Meaning
Borrower-In-Custody (BIC) collateral refers to an arrangement where a financial institution can pledge collateral to secure specific investments while retaining possession of that collateral. This arrangement is subject to agreed-upon terms between the financial institution and the Federal Reserve Bank (FRB). Essentially, it allows institutions to use their assets as security for loans or investments without losing control over them.
Legal Use & context
BIC collateral is primarily used in financial and banking law. It plays a critical role in the Treasury Tax and Loan Program, where financial institutions manage federal tax payments. This term is relevant for banks and other financial entities that engage in direct investments and term investments. Users may find it beneficial to utilize legal templates from US Legal Forms to navigate the complexities of these financial arrangements.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A bank pledges government bonds as BIC collateral to secure a loan from the FRB. The bank retains possession of the bonds while using them as security for the loan.
Example 2: A financial institution uses its portfolio of municipal bonds as BIC collateral to facilitate a term investment, allowing it to maintain control over the bonds while accessing necessary funds. (hypothetical example)