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The Dealer-to-Client Repo Market: A Buoy on a Swaying Sea

Author

Listed:
  • Greg Adams
  • Evan Dudley
  • Jean-Sébastien Fontaine
  • Sofia Tchamova
  • Andreas Uthemann

Abstract

In 2024, the overnight funding market experienced sustained pressure and the benchmark Canadian Overnight Repo Rate Average (CORRA) rose to 7 basis points above the Bank of Canada’s target overnight rate. Settlement balances were declining, but hedge fund borrowing also grew by over $30 billion, increasing the client share of total repo volumes. With limited balance sheets and substantial market power, dealers raised clients’ rates, which increasingly influenced CORRA. Overall, this episode highlights the effect that dealers’ balance sheet constraints and bargaining power have on where CORRA settles but downplays the role of the settlement balances channel in the dealer-to-client market.

Suggested Citation

  • Greg Adams & Evan Dudley & Jean-Sébastien Fontaine & Sofia Tchamova & Andreas Uthemann, 2025. "The Dealer-to-Client Repo Market: A Buoy on a Swaying Sea," Discussion Papers 2025-14, Bank of Canada.
    • Handle: RePEc:bca:bocadp:25-14
    DOI: 10.34989/sdp-2025-14
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    References listed on IDEAS

    as
    1. Boran Plong & Neil Maru, 2024. "CORRA: Explaining the rise in volumes and resulting upward pressure," Staff Analytical Notes 2024-21, Bank of Canada.
    2. Huber, Amy Wang, 2023. "Market power in wholesale funding: A structural perspective from the triparty repo market," Journal of Financial Economics, Elsevier, vol. 149(2), pages 235-259.
    3. Eisenschmidt, Jens & Ma, Yiming & Zhang, Anthony Lee, 2024. "Monetary policy transmission in segmented markets," Journal of Financial Economics, Elsevier, vol. 151(C).
    4. Boran Plong & Neil Maru, 2024. "What has been putting upward pressure on CORRA?," Staff Analytical Notes 2024-4, Bank of Canada.
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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