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How does the repo market behave under stress? Evidence from the COVID-19 crisis

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  • Hüser, Anne-Caroline
  • Lepore, Caterina
  • Veraart, Luitgard A. M.

Abstract

We examine how the repo market operates during liquidity stress by applying network analysis to novel transaction-level data of the overnight gilt repo market including the COVID-19 crisis. We find that during this crisis the repo network becomes more connected, with most institutions relying on previously used counterparties. There are however important changes in the repo volumes and spreads during the stress relative to normal times. There is a significant increase in volumes traded with the central counterparties (CCPs) sector. At the same time non-banks, except hedge funds, decrease borrowing and face higher spreads in the bilateral segment. Overall, this evidence reflects a preference for dealers and banks to transact in the centrally cleared rather than the bilateral segment. Our results can inform the policy debate around the behaviour of banks and non-banks in recent liquidity stress and on widening participation in CCPs by non-banks.

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  • Hüser, Anne-Caroline & Lepore, Caterina & Veraart, Luitgard A. M., 2024. "How does the repo market behave under stress? Evidence from the COVID-19 crisis," LSE Research Online Documents on Economics 121347, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:121347
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    Cited by:

    1. Evangelos Benos & Gerardo Ferrara & Angelo Ranaldo, 2022. "Collateral cycles," Bank of England working papers 966, Bank of England.
    2. Bassi, Claudio & Behn, Markus & Grill, Michael & Waibel, Martin, 2024. "Window dressing of regulatory metrics: Evidence from repo markets," Journal of Financial Intermediation, Elsevier, vol. 58(C).
    3. Adam Copeland & Darrell Duffie & Yilin (David) Yang, 2025. "Reserves Were Not So Ample After All," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 140(1), pages 239-281.
    4. David Aikman & Daniel Beale & Adam Brinley-Codd & Giovanni Covi & Anne‑Caroline Hüser & Caterina Lepore, 2023. "Macroprudential stress‑test models: a survey," Bank of England working papers 1037, Bank of England.
    5. Schuler, Katrin & Nadler, Matthias & Schär, Fabian, 2023. "Contagion and loss redistribution in crypto asset markets," Economics Letters, Elsevier, vol. 231(C).
    6. Claudio Bassi & Michael Grill & Felix Hermes & Harun Mirza & Charles O’Donnell & Michael Wedow, 2025. "Enhancing Repo Market Transparency: The EU Securities Financing Transactions Regulation," Journal of Financial Regulation, Oxford University Press, vol. 11(1), pages 98-118.
    7. Abbassi, Puriya & Bianchi, Michele Leonardo & Della Gatta, Daniela & Gallo, Raffaele & Gohlke, Hanna & Krause, Daniel & Miglietta, Arianna & Moller, Luca & Orben, Jens & Panzarino, Onofrio & Ruzzi, Da, 2024. "The German and Italian government bond markets: The role of banks versus non-banks," Technical Papers 12/2024, Deutsche Bundesbank.
    8. Jamie Coen & Patrick Coen & Anne-Caroline Hüser, 2024. "Collateral demand in wholesale funding markets," Bank of England working papers 1082, Bank of England.
    9. Eddie Gerba & Petros Katsoulis, 2021. "The repo market under Basel III," Bank of England working papers 954, Bank of England.
    10. Thanassoulis, John & Erten, Irem & Neamtu, Ioana, 2022. "The Ring-Fencing Bonus," CEPR Discussion Papers 17625, C.E.P.R. Discussion Papers.
    11. Benos, Evangelos & Ferrara, Gerardo & Ranaldo, Angelo, 2022. "Collateral cycles," Bank of England working papers 966, Bank of England, revised 24 Oct 2022.
    12. David Aikman & Daniel Beale & Adam Brinley-Codd & Giovanni Covi & Anne‑Caroline Hüser & Caterina Lepore, 2023. "Macroprudential stress‑test models: a survey," Bank of England working papers 1037, Bank of England.

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    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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