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The international dimension of repo: five new facts

Author

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  • Hermes, Felix
  • Schmeling, Maik
  • Schrimpf, Andreas

Abstract

We analyze the international dimension of repo markets using novel euro area regulatory microdata. Our findings highlight the deep integration of funding markets across the Atlantic and the US dollar’s outsized role. Our paper documents five key facts: (1) US dollar repos by euro area entities account for approximately 40% of total volumes and are comparable in size to euro repos; (2) term repos (with maturities beyond one day) are quantitatively more relevant than commonly thought, especially non-centrally cleared ones; (3) repo markets have become more collateral-driven, involving diverse nonbank financial players and trading motives; (4) banks’ intragroup transactions form a large share of non-centrally cleared volumes; and (5) haircuts, even for riskier collateral, are often zero or negative, especially in euro trades. We show in two empirical applications that US monetary policy shocks spill over to euro repo rates and that negative haircuts arise from market power and collateral demand dynamics. JEL Classification: G12, G14

Suggested Citation

  • Hermes, Felix & Schmeling, Maik & Schrimpf, Andreas, 2025. "The international dimension of repo: five new facts," Working Paper Series 3065, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20253065
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    More about this item

    Keywords

    bank intermediation; haircuts; repo market; US dollar funding;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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