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The Use of Collateral in Bilateral Repurchase and Securities Lending Agreements

Author

Listed:
  • Viktoria Baklanova

    (Office of Financial Research)

  • Cecilia Caglio

    (Federal Reserve Board of Governors)

  • Marco Cipriani

    (Federal Reserve Bank of New York)

  • Adam Copeland

    (Federal Reserve Bank of New York)

Abstract

We use unique data from U.S. BHC-affiliated securities dealers to study the use of collateral in bilateral repurchase and securities lending agreements. This is the first paper to provide stylized facts about this market, documenting, among other things, that most trades are backed by U.S. Treasuries and equities, and have either an overnight or open maturity. We also focus on how haircuts are determined in this market, highlighting the differences across asset classes. Finally, we document a negative correlation between haircut and interest rate, a prediction in line with a large set of theories; however this correlation is quite small in magnitude. (Copyright: Elsevier)

Suggested Citation

  • Viktoria Baklanova & Cecilia Caglio & Marco Cipriani & Adam Copeland, 2019. "The Use of Collateral in Bilateral Repurchase and Securities Lending Agreements," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 33, pages 228-249, July.
  • Handle: RePEc:red:issued:18-282
    DOI: 10.1016/j.red.2019.05.002
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    References listed on IDEAS

    as
    1. Ana Fostel & John Geanakoplos, 2012. "Leverage and Default in Binomial Economies: A Complete Characterization," Cowles Foundation Discussion Papers 1877RRR, Cowles Foundation for Research in Economics, Yale University, revised Mar 2015.
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    1. repec:red:issued:19-0 is not listed on IDEAS
    2. W. Arrata & B. Nguyen & I. Rahmouni-Rousseau & M. Vari, 2017. "Eurosystem’s asset purchases and money market rates," Working papers 652, Banque de France.
    3. Breach , Tomas & King, Thomas B., 2018. "Securities Financing and Asset Markets: New Evidence," Working Paper Series WP-2018-22, Federal Reserve Bank of Chicago.

    More about this item

    Keywords

    Repo; Securities lending; Adverse selection; Haircut;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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