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Regulatory effects on short-term interest rates

Author

Listed:
  • Ranaldo, Angelo

    () (University of St. Gallen)

  • Schaffner, Patrick

    () (Bank of England)

  • Vasios, Michalis

    () (Norges Bank Investment Management)

Abstract

We analyse the effects of EMIR and Basel III regulations on short-term interest rates. EMIR requires central clearing houses (CCP) to continually acquire safe assets, thus expanding the lending supply of repurchase agreements (repo). Basel III, in contrast, disincentivises the borrowing demand by tightening banks’ balance sheet constraints. Using unique datasets of repo transactions and CCP activity, we find compelling evidence for both supply and demand channels. The overall effects are decreasing short-term rates and increasing market imbalances in various forms, all of which entail unintended consequences originated from the new regulatory framework.

Suggested Citation

  • Ranaldo, Angelo & Schaffner, Patrick & Vasios, Michalis, 2019. "Regulatory effects on short-term interest rates," Bank of England working papers 801, Bank of England.
  • Handle: RePEc:boe:boeewp:0801
    as

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    File URL: https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2019/regulatory-effects-on-short-term-interest-rates.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Repo; central clearing; financial infrastructure; leverage ratio; EMIR; regulatory effects;

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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