IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/17768.html
   My bibliography  Save this paper

Sizing Up Repo

Author

Listed:
  • Arvind Krishnamurthy
  • Stefan Nagel
  • Dmitry Orlov

Abstract

We measure the repo funding extended by money market funds (MMF) and securities lenders to the shadow banking system, including quantities, haircuts, and repo rates by type of underlying collateral. We find that repo played only a small role in funding private sector assets prior to the crisis, as most repos are backed by Treasury and Agency collateral. Repo with private sector collateral contracts during the crisis, but the magnitude is relatively insignificant compared with the contraction in asset-backed commercial paper (ABCP). While relatively small in aggregate, the contraction in repo particularly affected key dealer banks with large exposures to private sector securities, which then had knock-on effects on security markets, and led these dealer banks to resort to the Fed's emergency lending programs. We also find that haircuts in MMF-to-dealer repo rise less than the dealer-to-dealer or dealer-to-hedge fund repo haircuts reported in earlier papers. This finding suggests that the contraction in repo led dealers to take defensive actions, given their own capital and liquidity problems, raising credit terms to their borrowers. The picture that emerges from these findings looks less like a traditional bank run of depositors and more like a credit crunch among dealer banks.

Suggested Citation

  • Arvind Krishnamurthy & Stefan Nagel & Dmitry Orlov, 2012. "Sizing Up Repo," NBER Working Papers 17768, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:17768
    Note: AP CF ME
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w17768.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    • Arvind Krishnamurthy & Stefan Nagel & Dmitry Orlov, 2014. "Sizing Up Repo," Journal of Finance, American Finance Association, vol. 69(6), pages 2381-2417, December.

    References listed on IDEAS

    as
    1. Tobias Adrian & Karin Kimbrough & Dina Tavares Marchioni, 2011. "The Federal Reserve’s Commercial Paper Funding Facility," Economic Policy Review, Federal Reserve Bank of New York, vol. 17(May), pages 25-39.
    2. Tobias Adrian & Adam B. Ashcraft & Hayley Boesky & Zoltan Pozsar, 2013. "Shadow banking," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 1-16.
      • Tobias Adrian & Adam B. Ashcraft & Hayley Boesky & Zoltan Pozsar, 2010. "Shadow banking," Staff Reports 458, Federal Reserve Bank of New York.
    3. Acharya, Viral V. & Schnabl, Philipp & Suarez, Gustavo, 2013. "Securitization without risk transfer," Journal of Financial Economics, Elsevier, vol. 107(3), pages 515-536.
    4. Markus K. Brunnermeier, 2009. "Deciphering the Liquidity and Credit Crunch 2007-2008," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 77-100, Winter.
    5. Zhiguo He & In Gu Khang & Arvind Krishnamurthy, 2010. "Balance Sheet Adjustments during the 2008 Crisis," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 58(1), pages 118-156, August.
    6. Kenneth D. Garbade, 2006. "The evolution of repo contracting conventions in the 1980s," Economic Policy Review, Federal Reserve Bank of New York, vol. 12(May), pages 27-42.
    7. 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.
    8. Adrian, Tobias & Shin, Hyun Song, 2010. "Liquidity and leverage," Journal of Financial Intermediation, Elsevier, vol. 19(3), pages 418-437, July.
    9. Shleifer, Andrei, 2010. "Comments on Gorton and Metrick: Regulating the Shadow Banking System," Scholarly Articles 10498513, Harvard University Department of Economics.
    10. Michael J. Fleming & Warren B. Hrung & Frank M. Keane, 2010. "Repo Market Effects of the Term Securities Lending Facility," American Economic Review, American Economic Association, vol. 100(2), pages 591-596, May.
    11. 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.).
    12. Duffie, Darrell, 1996. "Special Repo Rates," Journal of Finance, American Finance Association, vol. 51(2), pages 493-526, June.
    13. Tobias Adrian & Christopher R. Burke & James J. McAndrews, 2009. "The Federal Reserve's Primary Dealer Credit Facility," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 15(Aug).
    14. Michael J. Fleming & Warren B. Hrung & Frank M. Keane, 2009. "The Term Securities Lending Facility: origin, design, and effects," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 15(Feb).
    15. Arvind Krishnamurthy, 2010. "How Debt Markets Have Malfunctioned in the Crisis," Journal of Economic Perspectives, American Economic Association, vol. 24(1), pages 3-28, Winter.
    16. John Geanakoplos, 2009. "The Leverage Cycle," Cowles Foundation Discussion Papers 1715, Cowles Foundation for Research in Economics, Yale University.
    17. Gary Gorton & Andrew Metrick, 2010. "Regulating the Shadow Banking System," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(2 (Fall)), pages 261-312.
    18. Mr. Manmohan Singh & James Aitken, 2010. "The (Sizable) Role of Rehypothecation in the Shadow Banking System," IMF Working Papers 2010/172, International Monetary Fund.
    19. Zhiguo He & In Gu Khang & Arvind Krishnamurthy, 2010. "Balance Sheet Adjustments in the 2008 Crisis," NBER Working Papers 15919, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nicola Gennaioli & Andrei Shleifer & Robert W. Vishny, 2013. "A Model of Shadow Banking," Journal of Finance, American Finance Association, vol. 68(4), pages 1331-1363, August.
    2. Shengxing Zhang, 2014. "Collateral Risk, Repo Rollover and Shadow Banking," 2014 Meeting Papers 562, Society for Economic Dynamics.
    3. Daniel Covitz & Nellie Liang & Tobias Adrian, 2015. "Financial Stability Monitoring," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 357-395, December.
    4. Andrei Shleifer & Robert Vishny, 2011. "Fire Sales in Finance and Macroeconomics," Journal of Economic Perspectives, American Economic Association, vol. 25(1), pages 29-48, Winter.
    5. Gorton, Gary & Metrick, Andrew, 2012. "Securitized banking and the run on repo," Journal of Financial Economics, Elsevier, vol. 104(3), pages 425-451.
    6. Tobias Adrian & Adam B. Ashcraft & Hayley Boesky & Zoltan Pozsar, 2013. "Shadow banking," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 1-16.
      • Tobias Adrian & Adam B. Ashcraft & Hayley Boesky & Zoltan Pozsar, 2010. "Shadow banking," Staff Reports 458, Federal Reserve Bank of New York.
    7. Tobias Adrian & Adam B. Ashcraft, 2012. "shadow banking: a review of the literature," The New Palgrave Dictionary of Economics,, Palgrave Macmillan.
    8. Brunnermeier, Markus K. & Oehmke, Martin, 2013. "Bubbles, Financial Crises, and Systemic Risk," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1221-1288, Elsevier.
    9. Carlson, Mark & Macchiavelli, Marco, 2020. "Emergency loans and collateral upgrades: How broker-dealers used Federal Reserve credit during the 2008 financial crisis," Journal of Financial Economics, Elsevier, vol. 137(3), pages 701-722.
    10. Majid Haghani Rizi & N. Kundan Kishor & Hardik A. Marfatia, 2019. "The dynamic relationship among the money market mutual funds, the commercial paper market, and the repo market," The European Journal of Finance, Taylor & Francis Journals, vol. 25(5), pages 395-414, March.
    11. Gary Gorton & Andrew Metrick, 2010. "Regulating the Shadow Banking System," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(2 (Fall)), pages 261-312.
    12. Nicole Boyson & Jean Helwege & Jan Jindra, 2014. "Crises, Liquidity Shocks, and Fire Sales at Commercial Banks," Financial Management, Financial Management Association International, vol. 43(4), pages 857-884, December.
    13. Scott Brave & Hesna Genay, 2011. "Federal Reserve policies and financial market conditions during the crisis," Working Paper Series WP-2011-04, Federal Reserve Bank of Chicago.
    14. Viral V. Acharya & Nada Mora, 2011. "Are banks passive liquidity backstops? deposit rates and flows during the 2007-2009 crisis," Research Working Paper RWP 11-06, Federal Reserve Bank of Kansas City.
    15. Acharya, Viral V. & Fleming, Michael J. & Hrung, Warren B. & Sarkar, Asani, 2017. "Dealer financial conditions and lender-of-last-resort facilities," Journal of Financial Economics, Elsevier, vol. 123(1), pages 81-107.
    16. Górnicka, Lucyna A., 2016. "Banks and shadow banks: Competitors or complements?," Journal of Financial Intermediation, Elsevier, vol. 27(C), pages 118-131.
    17. Tobias Adrian & Adam B. Ashcraft, 2012. "Shadow Banking Regulation," Annual Review of Financial Economics, Annual Reviews, vol. 4(1), pages 99-140, October.
    18. Tobias Adrian & Karin Kimbrough & Dina Tavares Marchioni, 2011. "The Federal Reserve’s Commercial Paper Funding Facility," Economic Policy Review, Federal Reserve Bank of New York, vol. 17(May), pages 25-39.
    19. Tobias Adrian & Brian Begalle & Adam Copeland & Antoine Martin, 2013. "Repo and Securities Lending," NBER Chapters, in: Risk Topography: Systemic Risk and Macro Modeling, pages 131-148, National Bureau of Economic Research, Inc.
    20. Acharya, Viral V. & Afonso, Gara & Kovner, Anna, 2017. "How do global banks scramble for liquidity? Evidence from the asset-backed commercial paper freeze of 2007," Journal of Financial Intermediation, Elsevier, vol. 30(C), pages 1-34.

    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:17768. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.