IDEAS home Printed from https://ideas.repec.org/p/red/sed017/1151.html
   My bibliography  Save this paper

ON RRP and Stability of the Tri-party Market

Author

Listed:
  • Borghan Narajabad

    (Federal Reserve Board)

Abstract

The Federal Reserve uses the overnight reverse repo (ON RRP) as a monetary policy tool to provide a floor for overnight money market rates. The connection between the ON RRP and tri-party repo market provides an effective tool for interest rate control. But diverting funds away from the tri-party market to the ON RRP could hinder broker-dealers’ funding and cause a problem for the liquidity of various securities markets. The potential negative systemic effect of using the ON RRP could be amplified due to a multiplier effect of cash circulation through the reinvestment of cash collateral by securities lenders in repo. This paper provides a simple competitive search model to shed light on the interaction among the ON RRP eligible and ineligible cash lenders in the tri-party repo market. We use the model to study how the ON RRP rate and capacity affect broker-dealers’ funding. The calibrated model is used to study the tradeoff between the effectiveness of the ON RRP as a monetary policy tool and the potential instability that it can pose.

Suggested Citation

  • Borghan Narajabad, 2017. "ON RRP and Stability of the Tri-party Market," 2017 Meeting Papers 1151, Society for Economic Dynamics.
    • Handle: RePEc:red:sed017:1151
    as

    Download full text from publisher

    File URL: https://red-files-public.s3.amazonaws.com/meetpapers/2017/paper_1151.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Benjamin Lester & Roc Armenter, 2015. "Excess Reserves and Monetary Policy Normalization," 2015 Meeting Papers 586, Society for Economic Dynamics.
    2. Adam Copeland & Antoine Martin & Michael Walker, 2014. "Repo Runs: Evidence from the Tri-Party Repo Market," Journal of Finance, American Finance Association, vol. 69(6), pages 2343-2380, December.
    3. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Garth Baughman & Francesca Carapella, 2020. "Voluntary Reserve Targets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(2-3), pages 583-612, March.

    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. Infante, Sebastian, 2019. "Liquidity windfalls: The consequences of repo rehypothecation," Journal of Financial Economics, Elsevier, vol. 133(1), pages 42-63.
    2. Sebastian Infante, 2015. "Liquidity Windfalls: The Consequences of Repo Rehypothecation," Finance and Economics Discussion Series 2015-22, Board of Governors of the Federal Reserve System (U.S.).
    3. Corradin, Stefano & Heider, Florian & Hoerova, Marie, 2017. "On collateral: implications for financial stability and monetary policy," Working Paper Series 2107, European Central Bank.
    4. Olav Syrstad, 2020. "Covered Interest Parity in long-dated securities," Working Paper 2020/11, Norges Bank.
    5. Julliard, Christian & Pinter, Gabor & Todorov, Karamfil & Yuan, Kathy, 2022. "What drives repo haircuts? Evidence from the UK market," Bank of England working papers 985, Bank of England.
    6. Tobias Adrian & Adam B. Ashcraft & Nicola Cetorelli, 2013. "Shadow bank monitoring," Staff Reports 638, Federal Reserve Bank of New York.
    7. Tobias Adrian, 2014. "Financial stability policies for shadow banking," Staff Reports 664, Federal Reserve Bank of New York.
    8. Daniel Covitz & Nellie Liang & Tobias Adrian, 2015. "Financial Stability Monitoring," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 357-395, December.
    9. Corradin, Stefano & Maddaloni, Angela, 2020. "The importance of being special: Repo markets during the crisis," Journal of Financial Economics, Elsevier, vol. 137(2), pages 392-429.
    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. Gökçer Özgür, 2021. "Shadow banking and financial intermediation," Metroeconomica, Wiley Blackwell, vol. 72(4), pages 731-757, November.
    12. Valderrama, Laura, 2015. "Macroprudential regulation under repo funding," Journal of Financial Intermediation, Elsevier, vol. 24(2), pages 178-199.
    13. Buschmann, Christian & Schmaltz, Christian, 2017. "Sovereign collateral as a Trojan Horse: Why do we need an LCR+," Journal of Financial Stability, Elsevier, vol. 33(C), pages 311-330.
    14. Viktoria Baklanova & Adam Copeland & Rebecca McCaughrin, 2015. "Reference guide to U.S. repo and securities lending markets," Staff Reports 740, Federal Reserve Bank of New York.
    15. Andrzej Slawinski, 2015. "Shielding money creation from severe banking crises: How useful are proposals offered by the alternative reform plans?," Bank i Kredyt, Narodowy Bank Polski, vol. 46(3), pages 191-206.
    16. Tobias Adrian & Adam B. Ashcraft, 2012. "shadow banking: a review of the literature," The New Palgrave Dictionary of Economics,, Palgrave Macmillan.
    17. Adrian, Tobias & Breuer, Peter & Ashcraft, Adam & Cetorelli, Nicola, 2018. "A Review of Shadow Banking," CEPR Discussion Papers 13363, C.E.P.R. Discussion Papers.
    18. Viktoria Baklanova & Cecilia Caglio & Marco Cipriani & Adam Copeland, 2019. "The Use of Collateral in Bilateral Repurchase and Securities Lending Agreements," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 33, pages 228-249, July.
    19. Office of Financial Research (ed.), 2012. "Office of Financial Research 2012 Annual Report," Reports, Office of Financial Research, US Department of the Treasury, number 12-1.
    20. Stephen Quinn & William Roberds, 2016. "Death of a Reserve Currency," International Journal of Central Banking, International Journal of Central Banking, vol. 12(4), pages 63-103, December.

    More about this item

    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:red:sed017:1151. 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: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.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.