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The Euro Interbank Repo Market

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  • Mancini, Loreano

    ()

  • Ranaldo, Angelo

    ()

  • Wrampelmeyer, Jan

    ()

Abstract

The market for repurchase agreements (repos) is an important part of the shadow banking system. Using a novel and comprehensive dataset, we provide the first systematic study of the euro interbank repo market. We document the evolution of repo market activity and identify risk and central bank liquidity provisions as the main state variables. In contrast to repo markets in the United States, we find that the bilateral central counterparty-based segment was resilient during 2006{13, which includes severe crisis periods. An increase in risk significantly increases repo trading volume, but has virtually no effect on repo rates, average maturity, and haircuts. Moreover, volume in the unsecured market is negatively related to repo volume. This suggests that, under certain conditions, banks use the repo market as a means of liquidity hoarding. We identify the distinguishing characteristics that render the euro interbank repo market resilient during the crisis, namely its infrastructure, including anonymous trading via a central counterparty, the exclusive reliance on safe collateral, and the reusability of collateral.

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File URL: http://www1.vwa.unisg.ch/RePEc/usg/sfwpfi/WPF-1316.pdf
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Bibliographic Info

Paper provided by University of St. Gallen, School of Finance in its series Working Papers on Finance with number 1316.

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Length: 51 pages
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:usg:sfwpfi:2013:16

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Keywords: Repo market; secured funding; liquidity hoarding; shadow banking system; financial crisis; unconventional monetary policy;

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