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Repo Runs

Listed author(s):
  • Antoine Martin

    ()

  • David Skeie

    ()

  • Ernst-Ludig von Thadden

    ()

This paper develops a dynamic model of financial institutions that borrow short-term and invest into long-term marketable assets. Because such intermediaries performmaturity transformation, they are subject to potential runs. We derive distinct liquidity and collateral constraints that characterize the fragility of such institutions as a result of changing market expectations. The liquidity constraint depends on the intermediary’s endogenous liquidity position that acts as a buffer against runs. The collateral constraint depends crucially on the microstructure of particular funding markets that we examine in detail. In particular, our model provides insights into the fragility and differences of the tri-party repo market and the bilateral repo market that were at the heart of the recent financial crisis.

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File URL: http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmgdps/DP687%20AXA8.pdf
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Paper provided by Financial Markets Group in its series FMG Discussion Papers with number dp687.

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Date of creation: Jul 2011
Handle: RePEc:fmg:fmgdps:dp687
Contact details of provider: Web page: http://www.lse.ac.uk/fmg/

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  1. Gale, D. & Allen, F., 1991. "Limited Market Participation and Volatility of Asset Prices," Weiss Center Working Papers 14-91, Wharton School - Weiss Center for International Financial Research.
  2. Arvind Krishnamurthy & Stefan Nagel & Dmitry Orlov, 2012. "Sizing Up Repo," NBER Working Papers 17768, National Bureau of Economic Research, Inc.
    • Arvind Krishnamurthy & Stefan Nagel & Dmitry Orlov, 2014. "Sizing Up Repo," Journal of Finance, American Finance Association, vol. 69(6), pages 2381-2417, December.
  3. Darrell Duffie, 2010. "The failure mechanics of dealer banks," BIS Working Papers 301, Bank for International Settlements.
  4. Douglas W. Diamond & Raghuram G. Rajan, 1999. "A Theory of Bank Capital," NBER Working Papers 7431, National Bureau of Economic Research, Inc.
  5. Gary Gorton & Andrew Metrick, 2009. "Securitized Banking and the Run on Repo," Yale School of Management Working Papers amz2358, Yale School of Management, revised 01 Sep 2009.
  6. Markus K. Brunnermeier & Lasse Heje Pedersen, 2007. "Market Liquidity and Funding Liquidity," NBER Working Papers 12939, National Bureau of Economic Research, Inc.
  7. S. Viswanathan & Adriano A. Rampini, 2010. "Financial Intermediary Capital," 2010 Meeting Papers 1071, Society for Economic Dynamics.
  8. Bhattacharya, Sudipto & Padilla, A Jorge, 1996. "Dynamic Banking: A Reconsideration," Review of Financial Studies, Society for Financial Studies, vol. 9(3), pages 1003-1032.
  9. Daniel Covitz & Nellie Liang & Gustavo A. Suarez, 2013. "The Evolution of a Financial Crisis: Collapse of the Asset-Backed Commercial Paper Market," Journal of Finance, American Finance Association, vol. 68(3), pages 815-848, 06.
  10. Daniel M. Covitz & J. Nellie Liang & Gustavo A. Suarez, 2009. "The evolution of a financial crisis: panic in the asset-backed commercial paper market," Finance and Economics Discussion Series 2009-36, Board of Governors of the Federal Reserve System (U.S.).
  11. Oliver Hart & John Moore, 1998. "Default and Renegotiation: A Dynamic Model of Debt," The Quarterly Journal of Economics, Oxford University Press, vol. 113(1), pages 1-41.
  12. Franklin Allen & Douglas Gale, 1976. "Optimal Financial Crises," Center for Financial Institutions Working Papers 97-01, Wharton School Center for Financial Institutions, University of Pennsylvania.
  13. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-419, June.
  14. Kevin C. Murdock & Thomas F. Hellmann & Joseph E. Stiglitz, 2000. "Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?," American Economic Review, American Economic Association, vol. 90(1), pages 147-165, March.
  15. Bhattacharya, Sudipto & Boot, Arnoud W.A. & Thakor, Anjan V., 1995. "The economics of bank regulation," DEE - Working Papers. Business Economics. WB 7082, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
  16. Acharya, Viral V. & Schnabl, Philipp & Suarez, Gustavo, 2013. "Securitization without risk transfer," Journal of Financial Economics, Elsevier, vol. 107(3), pages 515-536.
  17. Patrick Bolton & Tano Santos & Jose A. Scheinkman, 2009. "Outside and Inside Liquidity," NBER Working Papers 14867, National Bureau of Economic Research, Inc.
  18. Ernst-Ludwig von Thadden & Erik Berglöf & Gérard Roland, 2010. "The Design of Corporate Debt Structure and Bankruptcy," Review of Financial Studies, Society for Financial Studies, vol. 23(7), pages 2648-2679, July.
  19. Jeremy C. Stein, 2011. "Monetary Policy as Financial-Stability Regulation," NBER Working Papers 16883, National Bureau of Economic Research, Inc.
  20. David R. Skeie, 2004. "Money and Modern Bank Runs," 2004 Meeting Papers 785, Society for Economic Dynamics.
  21. Adam Copeland & Antoine Martin & Michael Walker, 2010. "The tri-party repo market before the 2010 reforms," Staff Reports 477, Federal Reserve Bank of New York.
  22. Antoine Martin, 2006. "Liquidity provision vs. deposit insurance: preventing bank panics without moral hazard," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 28(1), pages 197-211, 05.
  23. repec:fip:fedgsq:y:2009:x:6 is not listed on IDEAS
  24. Qi, Jianping, 1994. "Bank Liquidity and Stability in an Overlapping Generations Model," Review of Financial Studies, Society for Financial Studies, vol. 7(2), pages 389-417.
  25. Viral V. Acharya & Tanju Yorulmazer, 2008. "Cash-in-the-Market Pricing and Optimal Resolution of Bank Failures," Review of Financial Studies, Society for Financial Studies, vol. 21(6), pages 2705-2742, November.
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