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Liquidity in the Repo Market

Listed author(s):
  • Lucas Marc Fuhrer

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.

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File URL: https://www.snb.ch/n/mmr/reference/working_paper_2017_06/source/working_paper_2017_06.n.pdf
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Paper provided by Swiss National Bank in its series Working Papers with number 2017-06.

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Length: 46 pages
Date of creation: 2017
Handle: RePEc:snb:snbwpa:2017-06
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  1. Kraenzlin, Sébastien & Nellen, Thomas, 2015. "Access policy and money market segmentation," Journal of Monetary Economics, Elsevier, vol. 71(C), pages 1-12.
  2. Ranaldo, Angelo & Rupprecht, Matthias & Wrampelmeyer, Jan, 2016. "Fragility of Money Markets," Working Papers on Finance 1601, University of St. Gallen, School of Finance, revised Apr 2016.
  3. Celso Brunetti & Mario di Filippo & Jeffrey H. Harris, 2011. "Effects of Central Bank Intervention on the Interbank Market During the Subprime Crisis," Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 2053-2083.
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  6. Fuhrer, Lucas Marc & Müller, Benjamin & Steiner, Luzian, 2017. "The Liquidity Coverage Ratio and security prices," Journal of Banking & Finance, Elsevier, vol. 75(C), pages 292-311.
  7. Kraenzlin, Sébastien & Schlegel, Martin, 2012. "Bidding behavior in the SNB’s repo auctions," Journal of International Money and Finance, Elsevier, vol. 31(2), pages 170-188.
  8. ., 2016. "The exchange rate," Chapters,in: The International Monetary System and the Theory of Monetary Systems, chapter 6, pages 52-56 Edward Elgar Publishing.
  9. R. Beaupain & A. Durre, 2013. "Central bank reserves and interbank market liquidity in the euro area," Post-Print hal-00840147, HAL.
  10. Lucas Marc Fuhrer & Basil Guggenheim & Silvio Schumacher, 2016. "Re‐Use of Collateral in the Repo Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(6), pages 1169-1193, September.
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  13. -, 2016. "Foreign Exchange Reserves. Recent Evolution," Documentos de Proyectos 40812, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
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  15. Beaupain, Renaud & Durré, Alain, 2013. "Central bank reserves and interbank market liquidity in the euro area," Journal of Financial Intermediation, Elsevier, vol. 22(2), pages 259-284.
  16. Aleksander Berentsen & Alessandro Marchesiani & Christopher Waller, 2014. "Floor Systems for Implementing Monetary Policy: Some Unpleasant Fiscal Arithmetic," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(3), pages 523-542, July.
  17. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
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  20. Bech, Morten & Monnet, Cyril, 2016. "A search-based model of the interbank money market and monetary policy implementation," Journal of Economic Theory, Elsevier, vol. 164(C), pages 32-67.
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