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Repo Auctions and the Market for Liquidity

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  • ULRICH BINDSEIL
  • KJELL G. NYBORG
  • ILYA A. STREBULAEV

Abstract

What is the nature of imperfections in the market for liquidity? Studying bidder level data from European Central Bank (ECB) repo auctions, we find that this market appears to be informationally efficient in the sense that participants do not have private information about future short-term rates. However, auction allocations affect banks' subsequent behavior in a way that is consistent with a degree of allocational and operational inefficiency. Also, large bidders appear to have better access to the interbank market than small ones. Finally, the evidence suggests that the ECB uses collateral haircuts that do not equilibrate opportunity costs. Copyright (c) 2009 The Ohio State University.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 41 (2009)
Issue (Month): 7 (October)
Pages: 1391-1421

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Handle: RePEc:mcb:jmoncb:v:41:y:2009:i:7:p:1391-1421

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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Cited by:
  1. Fecht, Falko & Nyborg, Kjell G. & Rocholl, Jörg, 2008. "The price of liquidity: bank characteristics and market conditions," Discussion Paper Series 1: Economic Studies 2008,30, Deutsche Bundesbank, Research Centre.
  2. Acharya, Viral V & Merrouche, Ouarda, 2012. "Precautionary hoarding of liquidity and inter-bank markets: Evidence from the sub-prime crisis," CEPR Discussion Papers 8859, C.E.P.R. Discussion Papers.
  3. Fecht, Falko & Nyborg, Kjell G. & Rocholl, Jörg, 2011. "The price of liquidity: The effects of market conditions and bank characteristics," Journal of Financial Economics, Elsevier, vol. 102(2), pages 344-362.
  4. Kjell G. NYBORG & Per OSTBERG, 2009. "Money and Liquidity in Financial Markets," Swiss Finance Institute Research Paper Series 10-25, Swiss Finance Institute, revised Jun 2010.
  5. Affinito, Massimiliano, 2013. "Central bank refinancing, interbank markets and the hypothesis of liquidity hoarding: evidence from a euro-area banking system," Working Paper Series 1607, European Central Bank.
  6. Massimiliano Affinito, 2013. "Central bank refinancing, interbank markets, and the hypothesis of liquidity hoarding: evidence from a euro-area banking system," Temi di discussione (Economic working papers) 928, Bank of Italy, Economic Research and International Relations Area.
  7. Craig, Ben R. & Fecht, Falko & Tümer-Alkan, Günseli, 2013. "The role of interbank relationships and liquidity needs," Discussion Papers 54/2013, Deutsche Bundesbank, Research Centre.
  8. Abbassi, Puriya & Fecht, Falko & Weber, Patrick, 2013. "How stressed are banks in the interbank market?," Discussion Papers 40/2013, Deutsche Bundesbank, Research Centre.

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