In banking, GC commonly stands for general collateral, which plays a vital role in the repo market.
Understanding General Collateral (GC)
General collateral refers to a group or collection of securities that trade at very similar repo rates in the repurchase agreement (repo) market. This rate is known as the GC repo rate.
Key characteristics of GC:
- Substitutability: GC securities are interchangeable. One GC security can replace another without significantly impacting the repo rate.
- Repo Market: GC is primarily relevant in the context of the repo market, where securities are sold with an agreement to repurchase them later at a specified price.
In essence, GC represents a pool of highly liquid and readily accepted securities used as collateral in short-term borrowing and lending activities within the financial system. The reference explains that, "GC or general collateral is a set or basket of security issues which trade in the repo market at the same or a very similar repo rate, which is called the GC repo rate. GC securities can therefore be substituted for one another without changing the repo rate much, if at all."
