IDEAS home Printed from https://ideas.repec.org/a/fip/fednep/y2006imayp27-42nv.12no.1.html
   My bibliography  Save this article

The evolution of repo contracting conventions in the 1980s

Author

Listed:
  • Kenneth D. Garbade

Abstract

Contracting conventions for repurchase agreements, or repos, changed significantly in the 1980s. The growth of the repo market, new uses for repos, and the emergence of new and previously unappreciated risks prompted market participants to revise their contracting conventions. This article describes the evolution of the conventions during that period, focusing on three key developments: the recognition of accrued interest on repo securities, a change in the application of federal bankruptcy law to repos, and the accelerated growth of a new form of repo-tri-party repo. The author argues that the emergence of tri-party repo owed to the efforts of individual market participants acting in their own economic self-interest. By comparison, recognition of accrued interest and the change in bankruptcy law were effected, respectively, by participants taking collective action and seeking legislative relief because uncoordinated, individual solutions would have been more costly. These developments offer important insights into how markets operate: contracting conventions that are efficient in one market environment may have to be revised when the environment changes, and institutional arrangements can change in any number of ways.

Suggested Citation

  • Kenneth D. Garbade, 2006. "The evolution of repo contracting conventions in the 1980s," Economic Policy Review, Federal Reserve Bank of New York, vol. 12(May), pages 27-42.
  • Handle: RePEc:fip:fednep:y:2006:i:may:p:27-42:n:v.12no.1
    as

    Download full text from publisher

    File URL: https://www.newyorkfed.org/medialibrary/media/research/epr/06v12n1/0605garb.pdf
    Download Restriction: no

    File URL: https://www.newyorkfed.org/medialibrary/media/research/epr/06v12n1/0605garb.html
    Download Restriction: no

    References listed on IDEAS

    as
    1. Norman N. Bowsher, 1979. "Repurchase agreements," Review, Federal Reserve Bank of St. Louis, vol. 61(Sep), pages 17-22.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kenneth D. Garbade & Frank M. Keane, 2017. "The Treasury Market Practices Group: creation and early initiatives," Staff Reports 822, Federal Reserve Bank of New York.
    2. Ewerhart, Christian & Tapking, Jens, 2008. "Repo markets, counterparty risk and the 2007/2008 liquidity crisis," Working Paper Series 909, European Central Bank.
    3. Adam Copeland & Antoine Martin & Michael Walker, 2014. "Repo Runs: Evidence from the Tri-Party Repo Market," Journal of Finance, American Finance Association, vol. 69(6), pages 2343-2380, December.
    4. Gary Gorton & Andrew Metrick, 2010. "Regulating the Shadow Banking System," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(2 (Fall)), pages 261-312.
    5. Shengxing Zhang, 2014. "Collateral Risk, Repo Rollover and Shadow Banking," 2014 Meeting Papers 562, Society for Economic Dynamics.
    6. Mark A. Carlson & Marco Macchiavelli, 2018. "Emergency Collateral Upgrades," Finance and Economics Discussion Series 2018-078, Board of Governors of the Federal Reserve System (U.S.).
    7. Arvind Krishnamurthy & Stefan Nagel & Dmitry Orlov, 2014. "Sizing Up Repo," Journal of Finance, American Finance Association, vol. 69(6), pages 2381-2417, December.
    8. Donaldson, Jason Roderick & Micheler, Eva, 2018. "Resaleable debt and systemic risk," Journal of Financial Economics, Elsevier, vol. 127(3), pages 485-504.
    9. Bank for International Settlements, 2015. "Central bank operating frameworks and collateral markets," CGFS Papers, Bank for International Settlements, number 53, Autumn.
    10. Carlson, Mark & Macchiavelli, Marco, 2020. "Emergency loans and collateral upgrades: How broker-dealers used Federal Reserve credit during the 2008 financial crisis," Journal of Financial Economics, Elsevier, vol. 137(3), pages 701-722.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lin, James Wuh, 1996. "Arbitrage, carrying costs, and inflation: A reexamination of market efficiency in treasury bill futures," International Review of Economics & Finance, Elsevier, vol. 5(2), pages 207-222.

    More about this item

    Keywords

    Contracts; Repurchase agreements;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fednep:y:2006:i:may:p:27-42:n:v.12no.1. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/frbnyus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.