According to the FFIEC policy statement on securities lending, what is the minimum initial amount of collateral required on domestic security loans?

The correct answer is that the minimum initial amount of collateral required on domestic security loans, according to the FFIEC policy statement on securities lending, is 102% of market value plus accrued interest.

This requirement is in place to ensure that lenders have sufficient protection against the risk of potential declines in the market value of the lent securities. By setting the collateral at 102% of the market value, the policy accounts for fluctuations in security prices, thereby providing a cushion or buffer to mitigate the lender's risk. Additionally, including accrued interest in the calculation ensures that any accrued earnings on the security are also protected, further safeguarding the lender's investment.

This policy approach highlights a commitment to prudent risk management practices in securities lending, which is critical for maintaining the stability and integrity of financial transactions. The rationale behind maintaining a collateral level above 100% reflects industry best practices aimed at managing counterparty risk effectively.