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Excess Funding Capacity in Tri-Party Repo

Author

Listed:
  • Adam Copeland
  • Ira Selig
  • Noah Zinsmeister

Abstract

Security dealers sometimes enter into tri-party repo contracts to fund one class of securities with the expectation they will wind up settling the contract with higher quality securities. This strategy is costly to dealers because they could have borrowed funds at lower rates had they agreed to use the higher-quality securities at the outset. So why do dealers do this? Why obtain or arrange excess funding for the initial asset class? In this post, we discuss possible rationales for an excess funding strategy and measure the extent of excess funding capacity in the tri-party repo market. In a second post, we examine the maturities of repos used to generate excess funding capacity and estimate the costs of this strategy.

Suggested Citation

  • Adam Copeland & Ira Selig & Noah Zinsmeister, 2017. "Excess Funding Capacity in Tri-Party Repo," Liberty Street Economics 20171002, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednls:87215
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    File URL: https://libertystreeteconomics.newyorkfed.org/2017/10/excess-funding-capacity-in-tri-party-repo.html
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    More about this item

    Keywords

    tri-party repo; funding;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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