FABS in U.S. financial accounts Quarterly values for outstanding FABS issues related to U.S. life insurers are available in U.S. financial accounts from 1997:Q3. For more information on how FABS are recorded in financial accounts, see Holmquist and Perozek (2016). To track the FABS market, we combine data from a wide range of sources.4 In the second half of the 2000s, U.S. life insurers accelerated their blue-line XFABN issuance in Figure 4. As with other short-term financing markets, such as commercial paper and asset-backed repo markets, the XFABN market collapsed in the summer of 2007, when institutional investors suddenly stopped expanding their XFABN. Under the terms of the contract, investors have received new securities – called spinoffs, which are displayed by the dotted red line in Figure 4 – that mature on a fixed date, usually about a year after the retraction notification.
A financing agreement is an investment vehicle in which a person pays a lump sum to the seller in exchange for a fixed return. Financing agreements are generally considered low risk and are therefore often acquired by pension funds, investment funds and other similar companies. The proceeds of financing contracts are similar to capital guarantee funds or guaranteed investment contracts, both instruments also promising a fixed rate of return at low or no risk for the investor. In other words, guarantee funds can generally be invested without risk of loss and are generally considered risk-free. However, like certificates of deposit or pension certificates, financing agreements generally offer only modest returns. 8. The movement of life insurers to FHLB is in line with a wider transfer of financing from the parallel bank to the FHLB system. See Acharya, Afonso and Kovner (2013). Back to the text What are the securities guaranteed by the financing contract? A financing contract is a deposit contract sold by life insurance companies, which generally pays a guaranteed rate of return over a specified period of time. As the name suggests, these insurance contracts are similar to deposits because they do not contain mortality or morbidity quotas.