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Re‐Use of Collateral in the Repo Market

Listed author(s):
  • LUCAS MARC FUHRER
  • BASIL GUGGENHEIM
  • SILVIO SCHUMACHER

This paper introduces a methodology to estimate the re‐use of collateral based on actual transaction data. With a comprehensive data set from the Swiss franc repo market we are able to provide the first systematic study on the re‐use of collateral. We find that re‐using collateral was most popular prior to the financial crisis when roughly 10% of the outstanding interbank volume was secured with re‐used collateral. Furthermore, we show that the re‐use of collateral increases with the scarcity of collateral. By giving an estimate of the collateral re‐use and explaining its drivers, the paper contributes to the on‐going debate on collateral availability.

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File URL: http://hdl.handle.net/10.1111/jmcb.12330
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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 48 (2016)
Issue (Month): 6 (September)
Pages: 1169-1193

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Handle: RePEc:wly:jmoncb:v:48:y:2016:i:6:p:1169-1193
Contact details of provider: Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  1. Darrell Duffie, 2013. "Replumbing Our Financial System: Uneven Progress," International Journal of Central Banking, International Journal of Central Banking, vol. 9(1), pages 251-280, January.
  2. Bottazzi, Jean-Marc & Luque, Jaime & Páscoa, Mário R., 2012. "Securities market theory: Possession, repo and rehypothecation," Journal of Economic Theory, Elsevier, vol. 147(2), pages 477-500.
  3. Markus K. Brunnermeier & Lasse Heje Pedersen, 2009. "Market Liquidity and Funding Liquidity," Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2201-2238, June.
  4. Zhiguo He & Wei Xiong, 2012. "Dynamic Debt Runs," Review of Financial Studies, Society for Financial Studies, vol. 25(6), pages 1799-1843.
  5. Kraenzlin, Sébastien & Nellen, Thomas, 2015. "Access policy and money market segmentation," Journal of Monetary Economics, Elsevier, vol. 71(C), pages 1-12.
  6. James Aitken & Manmohan Singh, 2009. "Deleveraging After Lehman; Evidence From Reduced Rehypothecation," IMF Working Papers 09/42, International Monetary Fund.
  7. Anouk Levels & Jeannette Capel, 2012. "Is Collateral Becoming Scarce? Evidence for the euro area," DNB Occasional Studies 1001, Netherlands Central Bank, Research Department.
  8. Basil Guggenheim & Sébastien Philippe Kraenzlin & Silvio Schumacher, 2011. "Exploring an uncharted market: Evidence on the unsecured Swiss franc money market," Working Papers 2011-05, Swiss National Bank.
  9. 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.
  10. Loriano Mancini & Angelo Ranaldo & Jan Wrampelmeyer, 2016. "The Euro Interbank Repo Market," Review of Financial Studies, Society for Financial Studies, vol. 29(7), pages 1747-1779.
  11. Peter Hördahl & Michael R King, 2008. "Developments in repo markets during the financial turmoil," BIS Quarterly Review, Bank for International Settlements, December.
  12. Manmohan Singh & James Aitken, 2010. "The (Sizable) Role of Rehypothecation in the Shadow Banking System," IMF Working Papers 10/172, International Monetary Fund.
  13. Fecht, Falko & Nyborg, Kjell G. & Rocholl, Jörg, 2011. "The price of liquidity: The effects of market conditions and bank characteristics," Journal of Financial Economics, Elsevier, vol. 102(2), pages 344-362.
  14. Gorton, Gary & Metrick, Andrew, 2012. "Securitized banking and the run on repo," Journal of Financial Economics, Elsevier, vol. 104(3), pages 425-451.
  15. Cameron,A. Colin & Trivedi,Pravin K., 2005. "Microeconometrics," Cambridge Books, Cambridge University Press, number 9780521848053, December.
  16. Manmohan Singh, 2011. "Velocity of Pledged Collateral; Analysis and Implications," IMF Working Papers 11/256, International Monetary Fund.
  17. 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.
  18. Ewerhart, Christian & Tapking, Jens, 2008. "Repo markets, counterparty risk and the 2007/2008 liquidity crisis," Working Paper Series 909, European Central Bank.
  19. Ulrich Bindseil & Kjell G. Nyborg & Ilya A. Strebulaev, 2009. "Repo Auctions and the Market for Liquidity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(7), pages 1391-1421, October.
  20. 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.
  21. Sébastien Philippe Kraenzlin & Benedikt von Scarpatetti, 2011. "Bargaining Power in the Repo Market," Working Papers 2011-14, Swiss National Bank.
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