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Liquidity in the Repo Market

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  • Dr. Lucas Marc Fuhrer

Abstract

This paper examines liquidity in the Swiss franc repurchase (repo) market and assesses its determinants using a proprietary dataset ranging from 2006 to 2016. I find that repo market liquidity has a distinct intraday pattern, with low liquidity in early and late trading hours. Moreover, repo market liquidity is negatively affected by stress in the global financial system and the end of the minimum reserve requirement period if central bank reserves are scarce. Furthermore, I show that with excess central bank reserves in the financial system, quoted volumes in the interbank market get imbalanced towards more cash provider relative to cash taker quotes and the trading volume declines. By estimating liquidity in an interbank repo market and explaining its drivers, this paper contributes to the ongoing debate on repo market functioning.

Suggested Citation

  • Dr. Lucas Marc Fuhrer, 2017. "Liquidity in the Repo Market," Working Papers 2017-06, Swiss National Bank.
    • Handle: RePEc:snb:snbwpa:2017-06
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    Cited by:

    1. Dr. Lucas Marc Fuhrer & Dr. Matthias Jüttner & Jan Wrampelmeyer & Matthias Zwicker, 2021. "Reserve tiering and the interbank market," Working Papers 2021-17, Swiss National Bank.
    2. Basil Guggenheim & Sébastien Kraenzlin & Christoph Meyer, 2022. "(In)efficiencies of current financial market infrastructures: an empirical assessment," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 158(1), pages 1-11, December.
    3. Q. Farooq Akram & Jon H. Findreng & Lyndsie Smith, 2023. "The Norwegian overnight interbank market during the Covid pandemic," Working Paper 2023/8, Norges Bank.

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    More about this item

    Keywords

    Repo market; liquidity; central bank reserves; Switzerland.;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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