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How Does the Repo Market Behave Under Stress? Evidence From the COVID-19 Crisis

Author

Listed:
  • Anne-Caroline Hüser
  • Caterina Lepore
  • Luitgard Veraart

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. During this crisis, the repo network becomes more connected, with most institutions relying on existing trade relationships to transact. There are however significant changes in the repo volumes and spreads during the stress relative to normal times. We find a significant increase in volumes traded in the cleared segment of the market. This reflects a preference for dealers and banks to transact in the cleared rather than the bilateral segment. Funding decreases towards non-banks, only increasing for hedge funds. Further, spreads are higher when dealers and banks lend to rather than borrow from non-banks. 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 nonbanks.

Suggested Citation

  • Anne-Caroline Hüser & Caterina Lepore & Luitgard Veraart, 2021. "How Does the Repo Market Behave Under Stress? Evidence From the COVID-19 Crisis," IMF Working Papers 2021/267, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2021/267
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    Cited by:

    1. 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).
    2. Hermes, Felix & Schmeling, Maik & Schrimpf, Andreas, 2025. "The international dimension of repo: five new facts," Working Paper Series 3065, European Central Bank.
    3. Eddie Gerba & Petros Katsoulis, 2025. "The repo market under Basel III: Effects of capital and liquidity regulations on market fragmentation," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 30(3), pages 2724-2744, July.
    4. Schuler, Katrin & Nadler, Matthias & Schär, Fabian, 2023. "Contagion and loss redistribution in crypto asset markets," Economics Letters, Elsevier, vol. 231(C).
    5. Yuki Konaka & Toshitaka Maruyama & Fumitaka Nakamura, 2025. "Exploratory Scenario Analysis Considering the Growing Presence of Domestic and Foreign Investment Funds," Bank of Japan Working Paper Series 25-E-11, Bank of Japan.
    6. Jamie Coen & Patrick Coen & Anne-Caroline Hüser, 2024. "Collateral demand in wholesale funding markets," Bank of England working papers 1082, Bank of England.
    7. Evangelos Benos & Gerardo Ferrara & Angelo Ranaldo, 2022. "Collateral Cycles," Swiss Finance Institute Research Paper Series 22-91, Swiss Finance Institute.
    8. David Aikman & Daniel Beale & Adam Brinley-Codd & Anne-Caroline Hüser & Giovanni Covi & Caterina Lepore, 2023. "Macro-Prudential Stress Test Models: A Survey," IMF Working Papers 2023/173, International Monetary Fund.
    9. 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.
    10. 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.
    11. Mark Paddrik & Carlos Ramirez, 2025. "Treasury Tri-party Repo Pricing," Working Papers 25-07, Office of Financial Research, US Department of the Treasury.
    12. Eddie Gerba & Petros Katsoulis, 2021. "The repo market under Basel III," Bank of England working papers 954, Bank of England.
    13. Thanassoulis, John & Erten, Irem & Neamtu, Ioana, 2022. "The Ring-Fencing Bonus," CEPR Discussion Papers 17625, C.E.P.R. Discussion Papers.
    14. 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.

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    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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