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The Cost and Duration of Excess Funding Capacity in Tri-Party Repo

Author

Listed:
  • Adam Copeland
  • Ira Selig
  • Noah Zinsmeister

Abstract

In a previous post, we showed that dealers sometimes enter into tri-party repo contracts to acquire excess funding capacity, and that this strategy is most prevalent for the agency mortgage-backed securities (MBS) and equity asset classes. In this post, we examine the maturity of the repos used to pursue this strategy and estimate the associated costs. We find that repos that generate excess funding capacity for equities and corporate debt have longer maturities than the average repo involving either of these asset classes. Furthermore, the premiums dealers pay to maintain excess funding capacity can be substantial, particularly for equities.

Suggested Citation

  • Adam Copeland & Ira Selig & Noah Zinsmeister, 2017. "The Cost and Duration of Excess Funding Capacity in Tri-Party Repo," Liberty Street Economics 20171004, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednls:87216
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    More about this item

    Keywords

    funding; tri-party repo;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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