AbstractThis paper develops a dynamic model of financial institutions that borrow short-term and invest into long-term marketable assets. Because such intermediaries performmaturity transformation, they are subject to potential runs. We derive distinct liquidity and collateral constraints that characterize the fragility of such institutions as a result of changing market expectations. The liquidity constraint depends on the intermediary’s endogenous liquidity position that acts as a buffer against runs. The collateral constraint depends crucially on the microstructure of particular funding markets that we examine in detail. In particular, our model provides insights into the fragility and differences of the tri-party repo market and the bilateral repo market that were at the heart of the recent financial crisis.
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Bibliographic InfoPaper provided by Financial Markets Group in its series FMG Discussion Papers with number dp687.
Date of creation: Jul 2011
Date of revision:
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Web page: http://www.lse.ac.uk/fmg/
Other versions of this item:
- Martin, A. & Skeie, D. & Thadden, E.L. von, 2010. "Repo Runs," Discussion Paper 2010-44S, Tilburg University, Center for Economic Research.
- Martin, Antoine & Skeie, David & Thadden, Ernst-Ludwig von, 2013. "Repo Runs," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 448, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Antoine Martin & David Skeie & Ernst-Ludwig von Thadden, 2010. "Repo runs," Staff Reports 444, Federal Reserve Bank of New York.
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-04-10 (All new papers)
- NEP-BAN-2012-04-10 (Banking)
- NEP-DGE-2012-04-10 (Dynamic General Equilibrium)
- NEP-FMK-2012-04-10 (Financial Markets)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:CitEc Project, subscribe to its RSS feed for this item.
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