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Interest Rate Setting on the Swiss Franc Repo Market

Author

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  • Sébastien Kraenzlin

Abstract

Repurchase agreements (repos) are secured money market transactions. The cash taker provides collateral in the form of securities and in return receives money from the cash provider. To ensure the continuous covering of the cash amount, the definition of eligible collateral, its handling and valuation play an important role. This is mainly because the collateral nearly eliminates credit risk. In Switzerland, Swiss franc repos are almost exclusively conducted via the highly standardized repo platform, with four different pre-defined collateral baskets. Each basket comprises different security categories, such as government bonds or covered bonds. This paper analyzes the interest rate setting on the repo market with data from June 1999 to June 2005. It evaluates, among others, if the securities provided as collateral influenced the repo rate or not. Surprisingly, a price differentiation with respect to the collateral provided is found. Consequently the paper provides an explanation for this finding and discusses a possible solution.

Suggested Citation

  • Sébastien Kraenzlin, 2009. "Interest Rate Setting on the Swiss Franc Repo Market," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 145(III), pages 351-377, September.
  • Handle: RePEc:ses:arsjes:2009-iii-4
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    File URL: http://www.sjes.ch/papers/2009-III-4.pdf
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    References listed on IDEAS

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    1. Thomas J. Jordan & Peter Kugler, 2004. "Implementing Swiss Monetary Policy: Steering the 3M-Libor with Repo Transactions," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 140(III), pages 381-393, September.
    2. Sébastien Kraenzlin, 2007. "The characteristics and development of the Swiss franc repurchase agreement market," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 21(2), pages 241-261, June.
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    Cited by:

    1. Silvio Schumacher, 2016. "Networks and lending conditions: Empirical evidence from the Swiss franc money markets," Working Papers 2016-12, Swiss National Bank.
    2. Sébastien Philippe Kraenzlin & Benedikt von Scarpatetti, 2011. "Bargaining Power in the Repo Market," Working Papers 2011-14, Swiss National Bank.
    3. Sébastien Kraenzlin & Martin Schlegel, 2012. "Demand for Reserves and the Central Bank's Management of Interest Rates," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 148(IV), pages 531-555, December.
    4. Fuhrer, Lucas Marc, 2018. "Liquidity in the repo market," Journal of International Money and Finance, Elsevier, vol. 84(C), pages 1-22.

    More about this item

    Keywords

    Repurchase Agreement; Repo; Monetary Policy; Panel Data Econometrics; Collateral; Switzerland;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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